Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Artificial Intelligence Running Hedge Fund

The world’s newest hedge fund is not run by a Wall Street hot-shot. Instead it is run by an artificial intelligence built by an anonymous network of data scientists.

Numerai will use blockchain technology to create an open-sourced hedge fund that might even issue its own cryptocurrency, Wired reported. It was even built in an open-sourced competition in which data scientists competed to design the best trading algorithms.

The scientists were not competing for glory instead they were competing for bitcoin prizes and their contribution was kept anonymous. My guess is that was so they could keep their day jobs at places like Goldman Sachs (NYSE: GS), the investment banking giant now employs 9,000 computer scientists.

Investing in Artificial Intelligence

Around 12,000 scientists participated in the competition to build Numerai. To keep the system’s secrets safe the data was protected by an encrypted blockchain token called Numeraie.

Numeraie uses the blockchain ledger technology Etherum to guard proprietary information and uses bitcoin to make payments. The Numeraie might also serve as shares of stock in Numerai which is supposed to make money trading. The team at Numerai also hopes that Numeraie will one day function as a cryptocurrency as well as a trading medium.

Numerai turns the whole idea of hedge fund upside down. A traditional hedge fund is a privately held venture in which a few experts trade with investors’ money. Its success is based upon the investing techniques of the expert traders.

Is Numerai the Future of Finance?

The idea behind Numerai is to let people invest in an artificial intelligence that will trade for them. It’s a radical concept created by a South African born Geek called Richard Craib.

Watch Numerai carefully because it might be a real game changer and provide a new paradigm for the market economy. Craib hopes to replace the traditional Wall Street or City investment model that rewards a few wealthy traders who engage in cutthroat competition with one based on collaboration and cooperation.

“Why is tech positive-sum and finance zero-sum?” Craib asked. “The tech companies benefit from network effects where people behave differently because they are trying to build a network, rather than trying to compete.”

His ultimate goal is to turn investment into an open-sourced software project. If Craib succeeds Numerai might become the most influential financier and investment banker in the world.

It might also become the first of a legion of artificial intelligences that will one day takeover all the financial markets. One has to wonder if governments and the public will tolerate Artificial intelligence controlling the financial markets.