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Can You Trust Hyper-Deflationary Cryptocurrencies and Algorithmic Trading?

3 mins
Updated by Adam James
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The cryptocurrency and blockchain ecosystems are continuously evolving. The utility of the blockchain has lead to the emergence of products like OptiToken.
[Editor’s Note: This article is for informational purposes only. BeInCrypto has no relationship with OptiToken, nor does it recommend OptiToken in any way. Anyone interested in the project should do their own thorough research and due diligence.] New crypto products are showing up almost daily, and they keep pushing the boundaries of ingenuity and utility. Among these products is OptiToken, a radical and bold attempt at creating a unique product, although it may have similarities to some previously existing ones. To explain the idea of OptiToken without you having to read this article multiple times, we’ll try to use an analogy you’re likely to be familiar with. Ever heard of Index funds or ETFs (Exchange Traded Funds)? These are securities on the stock exchange that are a combination of stocks of various companies. A financial market expert once described it as “buying a piece of the whole market.” When you buy an index fund, you own shares of different companies and can benefit from their performing well or have the average outcome in a mix of best and fair-yield portfolio components. OptiToken works similarly to Index funds and ETFs. It’s a cryptocurrency with an underlying value as a basket of various cryptocurrencies. A unit of OptiToken gives you ownership of a range of different cryptocurrencies. You’re not just holding these different cryptocurrencies, OptiToken purports to actively trade these cryptocurrencies in hopes of turning a profit for the holders. The interesting thing about this token is that the trading is done algorithmically. An algorithm does the bulk of the trading, leaving just a little aspect of the trading to human investors. virtual human

The Dangers of Algorithmic Trading

It’s completely normal, for various reasons, to be worried about leaving investing decisions to software and bots and trusting them to make the right choices with your money. First of all, an algorithm is only as good as the programmer. Human errors in programming can lead to wrong decisions and bad trades. Secondly, crypto trading algorithms are subject to news, social media posts, and other organic factors, which can be easily manipulated by unscrupulous elements. These fears are not completely unfounded. This is because there have been instances in the past where investors lost a lot of their funds due to trading algorithms making wrong buying and selling choices. OptiToken purports to have created a way around bogus signals, fake news, and dump-and-sell schemes by using different variables from those used in the usual cryptocurrency trading algorithms. Rather than using news items and social media items, OptiToken claims to use identifiable “hard” variables like transaction volumes, mining volumes, mempools, and hashing power movements, among others.

Price Deflation and Hyper-Deflation

It’s simple economics — as demand rises, price falls. These basic principles are contributing factors to the volatility in the price of cryptocurrencies. For OptiToken, a drop in the price and value of the tokens is intended to be prevented through a strategy known as constant upward price pressure. The strategy involves repurchasing some of the tokens. When profits are made from cryptocurrency trading, rather than adding to the available pool of optiTokens and causing a supply glut, the profits are used to buy off available tokens. If OptiTokens become more available than can be bought back, deflation occurs in the price, causing a drop in value. To counteract this possibility, extra OptiTokens are diverted to an address where they can’t be spent. This is a way to ensure a kind of artificial scarcity and keep the value of the cryptocurrency high. It is for this reason that OptiTokens are referred to as a hyper-deflationary currency. skeptical

Accountability and Potential Downsides

Despite all the possible advantages promised by OptiToken, investors still have the right to be worried about automated systems. No matter the variables being used in making predictions and determining buying or selling decisions, errors can still occur. When mistakes occur with large trade volumes of the magnitude being traded on a platform like OptiToken, the results can be catastrophic. Investors must therefore be cautious when trying to decide whether or not to purchase OptiTokens. Do you think there are healthy prospects for OptiToken going forward? Leave your comments in the section below. 


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Adolph Obasogie
Adolph is a Chartered Accountant who has worked as a global investment and portfolio analyst for more than a decade. He reads , documents, and contributes to the unfolding...