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The article is penned by Fox Holt, Vice President of Business Development at Delphy
When deciding which assets to invest in, one of the most important considerations is its variance or volatility: the pace at which its prices move higher or lower, and how wildly they swing. Currencies often have low volatilities, while commodities and equities can experience intense movements in price.
Perhaps the most volatile asset of all – the newest addition to financial portfolios – is cryptocurrency.
A plethora of factors are involved: with a relatively small circulation of coins, prices of cryptocurrencies are often unduly affected by the actions of ‘whales’- early investors with large stakes in specific markets.
News also undoubtedly plays a part: China’s ban on Initial Coin Offerings and rumours that South Korea may hit cryptocurrency exchanges with tax bills have sent prices on certain cryptocurrencies plummeting. NiceHash’s Bitcoin theft, worth $70 million, and OpenSSL vulnerabilities have yielded similar results. Contrastingly, news of celebrity endorsements from the likes of DJ Khaled and Floyd Mayweather have encouraged wild, bullish moves on some coins.
All of this adds up to a prodigiously volatile space – one that comes with opportunities and risks. Investing in an undervalued coin with a lucrative entry point can net incredible returns – but finding the next bitcoin is a challenge.
How prediction markets can help
While it’s not possible to know with perfect accuracy which cryptocurrencies will be profitable, mobile prediction market platforms such as Delphy give investors the next best alternative: the ability to find and invest in undervalued coins, to spot which cryptocurrencies will ‘take off’, and to invest at sensible entry points.
Prediction markets do this by aggregating the speculative opinions from users, making use of a psychological phenomenon known as the ‘wisdom of crowds’. Prediction markets take individuals’ opinions and forms these into possibilities, or the chance that something will happen in the future. It’s like any prediction: Brazil has a 17 per cent chance of winning the 2018 World Cup, Democrats have a 58 percent chance of triumphing at the next US Presidential election, and so on. It’s all based on statistical analysis.
Almost any future occurrence – sporting events, political elections, technological milestones – can be predicted with surprising accuracy using predictive markets and the world of cryptocurrency is no exception. Delphy can predict where a cryptocurrency’s price will be in 1 year, or 10 years from now. It can predict which coins will rise, and which will fall- all the while, rewarding users if they predict correctly.
With the security of knowing the long-term direction of cryptocurrency prices, investors can make informed decisions about which cryptocurrencies to invest in, and which to avoid.
Trusting in data
While prediction markets aren’t infallible, they’ve shown remarkable accuracy in recent years, having shown their mettle in the political predictions. In 2008, for example, one prediction market forecasted that Barack Obama was going to secure 364 votes within the electoral college, and with it the US Presidency. The actual result? He won with 365 electoral-college votes.
In 2012, the same prediction market accurately forecasted the results of the second Obama win with correct predictions in 49 of the 50 states. Would Intrade have predicted the 2016 election of Donald Trump? We’ll never know for sure, as the platform was no longer operating.
The phenomenon of “the wisdom of the crowds” is one reason for the accuracy behind Delphy. Anyone can join, and the large numbers of participants are one of the factors that contribute to successful predictions. Groups of individuals, of course, aren’t always right, but in general, groups of people tend to be more insightful than a single expert. This is especially true when complex subject matter and highly uncertain outcomes are involved.
Financial incentives are another factor that contributes to the accuracy of Delphy’s prediction markets mobile platform. An analogy can be made to stock markets. Just as the stock market rewards investors for choosing stocks correctly, a prediction market financially rewards those who contribute accurate predictions.
Yet another reason for the accuracy of prediction markets is that it amplifies good information and filters out the bad: when someone on social media insists that bitcoin will reach a certain price, there are no repercussions. There’s also no way to qualify a person’s opinion against the opinions of others. Unless a person is a well-known expert in the field, weight is often given to whoever tweets the most or shouts the loudest.
Delphy, on the other hand, has a filtering mechanism, giving more creditability to those who ‘put their money where their mouth is.’ When someone invests $1.00 to predict bitcoin will reach $20,000, and another person invests $50.00 to predict the same, it’s generally accepted that the one risking more is more confident and has better information.
Prediction markets applied to the crypto-markets
Predictive markets present a promising solution to the peaks, the troughs, the rushed buying, and the panic selling: all of which currently characterize the cryptocurrency space.
While cryptocurrency may forever be a more volatile instrument than equities, investors do not necessarily have to remain victims of the market’s rapid movements. Cryptocurrencies may have ups and downs, but with predictive markets, and its crystal-ball knowledge of bullish and bearish moves, it may be possible to smooth the ride.
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The post Can Prediction Markets Help Investors Capitalize on Crypto-Volatility? appeared first on Crypto Currency Online.
source https://cryptocurrencyonline.co/can-prediction-markets-help-investors-capitalize-on-crypto-volatility/
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