Let’s copy the “BlackRock approach” to trade profitably on the crypto market
How to predict crypto market and trade with profit using the BlackRock’s approach for data consolidation as well as analyzing and making on time investment decisions chasing transactions of Big Whales in Bitcoin.
“First I figured out where the sharp action was, where the guys who had a plan were, the guys who grinded. Took the guesswork out of it.”
Bobby Axelrod, Billions, Season 2
“… take a close look at the people who are successful in your field. What do they do on a regular basis? Then adopt one of their habits and make it your own… ”, was mentioned in the Inc. magazine article about 10 insights from TV-series “Billions”.
If you are my constant reader, you probably remember the article ‘How to predict stock market using Google Tensorflow and LSTM neural network’ where I started the research in attempt to find the “golden grail” for stock market in order to trade with profit. As you know from series of articles I wrote then the results where ‘so-so’ and I couldn’t say that I got the desirable trading algorithm and could stop my study.
Months later I got another great idea while listening to some AI podcast. What if we can collect and analyze data, using new generation of AI and big transactions of Whales on crypto market to predict the prices for Bitcoin? With this question — the new research was started. Let’s dive into it!
What is BlackRock Aladdin and how it can help?
Literally, on crypto market, — it can’t for now; But it can be a good example of Big Data systematization and further analysis in attempt to make on-time investment decisions, including trading.
According to official web-site, BlackRock Aladdin is the end-to-end portfolio management software which combines sophisticated risk analytics with comprehensive portfolio management tools, trading, operations, compliance and accounting aimed to help clients to achieve their financial goals better by caring about their financial well-being.
From technical prospective, Aladdin is the set of software modules and tools, including Big Data sets, heavy calculations with system rules and AI models. And the key in it is data, Big Data.
Tim Garbien, Managing Director from BlackRock Aladdin says,
‘Data is the Gold’.
Aladdin monitors 2,000+ risk factors every day — from interest rates to currencies — and performs 5,000 portfolio stress tests and 180 million option-adjusted calculations every week.
Based on this, we can see that this truly is Big Data and Heavy calculations are performed by BlackRock to prepare data which is so needed to be used by Portfolio managers in order to advice clients on their investments.
How does the BlackRock Aladdin work?
Besides of everything else, Aladdin:
- includes approximately 55,000 investment professionals around the world who joined the system of collecting information about user’s investment portfolio. Mostly, they work in investment firms;
- operates data and analytics “factory” with 600+ professionals focused on creating and quality controlling data and analyses for clients;
Can you imagine, how many data is being collected in Aladdin Data Cloud? Enormous amount. And notice that BlackRock’s clients are the major banks of America such as Merrill Lynch, JPMorgan Chase and Citi Group. So Data is the key of BlackRock’s success as the provider of up-to-data stock market analytics.
As you can see from the picture above, they collect and analyze information on different topics including trade execution and portfolio management. And the same things we will do by copying their approach but for the crypto market.
What has an impact on Crypto asset prices?
First, let’s figure out the key drivers affecting the cryptocurrency market and how significant players, such as whales, can influence the price of the specific asset, for instance IOTA.
Before considering the role of whales or market makers in the crypto market, let’s define the primary factors that significantly sway the prices:
- Securities: US Treasury Bills, Bonds, and Notes along with fundamental indicators like the inflation rate, central bank rates and macroeconomic figures;
- Stock market and major indexes such as the S&P 500, NASDAQ and
Dow Jones; - Leading cryptocurrencies like ETH, BTC and the top 10 on the CoinMarketCap’s list.
After taking into account these foundational factors, we can then check the influence of Whales and other significant market players. It means that even if a Whale aims to consolidate market liquidity, any disruption in the previously mentioned layers can entirely break their plans.
Therefore, it’s essential to always measure macroeconomic figures. Collecting and analyzing this Big Data using the artificial intelligence and “Enhanced Bayesian Neural Networks for Macroeconomics and Finance” is crucial.
How Whales can impact the market?
The Whale is a dominant market participant who buys or sells large quantities of assets to influence market prices. Typically, whales have objectives such as:
- accumulating liquidity by targeting the stop-losses of smaller traders;
- gathering liquidity by targeting derivative levels (Shorts/Longs). They can manipulate prices to trigger the liquidation of your order.
In both scenarios, whales transact with large volumes of crypto asset.
The transaction value in USD can vary for different kinds of assets. For instance, as illustrated in the image above, a $5k transaction in the HYDRA/WETH pair can significantly influence on the market price. If we want to trade with profit, it’s essential to track and analyze big amounts in the order book along with the trend and correlation on volume.
Whale transactions analysis
Gathering and analyzing real-time Big Data on Whales activity on a specific market and monitoring their accounts and transactions, we can observe significant shifts not only in their current holdings but also in transfers to the Exchange, for instance. Such activity could indicate that a whale is preparing to sell a large quantity, driving the market downward.
In such scenarios, the trading platform should either notify us of this kind of whale behavior or autonomously execute trades based on our established trading/investing policy (rules).
It also make sense to examine and track the whale’s portfolio in automatic mode to determine which assets are being offloaded and which are being acquired.
It’s valuable to observe those changes and generate automatic suggestion from the AI-driven Recommendation System, as illustrated above.
Generally speaking, it could be beneficial to monitor the Whales of the top 100 cryptocurrencies on CoinMarketCap to react in time to shifts in the crypto market landscape.
PUMP/DUMP detection
Monitoring the real-time transactions and portfolios of major Whales gives us a unique insight into market dynamics. By closely observing these activities, it becomes feasible to anticipate market movements, such as potential pumps and dumps. This predictive capability, rooted in AI-driven data analysis of Big Data, can be a valuable for trading.
As shown on the picture above, this method can highlight significant market inflection points, which are forecasted using Whale Transaction Data Analysis through Google TensorFlow ML models.
What else might we need to analyze?
For profitable trading we might need to gather, store, and analyze a range of parameters and Big Data from the market as well as from the social networks using different tools such as Deep-learning AI models. Let’s delve into some of them.
Order Book. A respective list of buy and sell orders in a particular market at specific prices. Analyzing the order book across all exchanges can provide insights into market demand, potential price direction and areas of support and resistance. Additionally, understanding liquidations can give a sense of market sentiment and potential volatility.
Structure, Liquidity, and Volume:
- Structure. Refers to the composition of the market, including the types of participants and their roles as well as trend;
- Liquidity. Measures how easily an asset can be bought or sold without causing significant price changes. High liquidity typically means that there are many buyers and sellers;
- Volume. Refers to the number of coins or contracts traded on the market. It can indicate the strength or weakness of a price trend.
Spread & Open Interest:
- Spread. It’s a gap between the highest bid (buy) and the lowest ask (sell) price. This can serve as an indicator of the market’s liquidity;
- Open Interest. Refers to the total number of outstanding derivative contracts, such as futures that have not been settled yet.
Correlation Crypto to Stock Market. Measures the relation between the cryptocurrency market and the stock market. A positive correlation means both markets move in the same direction, while a negative correlation means they move in opposite directions.
Trends in Google Search. Analyzing the frequency and patterns of specific search terms on Google can provide insights about public interest, sentiment, and potential market movements.
Trends in Twitter. Tracking Twitter trends related to cryptocurrencies like BTC and ETH can be instrumental in keeping a finger on the pulse of people’s sentiments.
Each of these points provide a unique lens through which we can view cryptocurrency market dynamics, leaning towards more effective decision making.
What might we have to copy from the “BlackRock approach”?
In order to successfully replicate the “BlackRock approach”, it’s crucial to have a well-rounded set of tools. To achieve this aim, we may need to develop/build:
- infrastructure for Big Data;
- Machine Learning models for Big Transaction Data analysis;
- AI-driven Recommendation System;
- Neural Networks for Bayesian Macroeconomic analysis;
- Neural network for PUMP/DUMP detection;
- ML models for Google Trend analysis and Twitter trends analysis;
- and much more.
Holistically, as illustrated, copying the “BlackRock approach” is no easy feat. Yet, if one can master it, the rewards could be significant.
What is next?
As part of my own experimentation with automated trading algorithms I am gonna build the infrastructure and basic components for Whale’s analysis to make me closer to “golden grail” on crypto market.
Probably, next time I will publish an article about simple analysis with Bitcoin Whale’s big money movement. Stay tuned.
Get in touch
If you have questions about ideas mentioned in this article or you have your own ideas regarding ‘how to make trades profitable analyzing big players on the market’, don’t hesitate to reach me out.
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