Are there hedge funds for cryptocurrencies?
Numerai - The world's first hedge fund cryptocurrency
Unlike other hedge funds, Numerai does not want to rely on an individual or a team consisting of financial market experts to invest the capital profitably, but rather to make use of large amounts of data (big data) or artificial intelligence.
In order to implement this concept and improve its investment strategies, Numerai wants to attract data scientists. Numerai aims to generate outstanding returns by using better stock market forecasting models. This should also benefit investors - but one after the other.
What is Numerai?
Numerai is a San Francisco-based blockchain start-up founded by 29-year-old South African Richard Craib in 2016. The start-up is financially supported by Union Square Ventures, AngelList founder Naval Ravikant and First Round Capital.
A so-called Initial Coin Offering (ICO) did not take place, so that small investors were initially unable to participate. To give data scientists an incentive to submit their data models, Numerai has launched its own crypto currency: Numeraire, a crypto currency based on the Ethereum blockchain, the number of which, like Bitcoin, is limited to 21 million.
Initially, 1.2 million Numeraire tokens were issued to a network of 19,000 data scientists. New Numeraire tokens are issued to the data experts on a weekly basis. These are intended to help improve forecast models for the stock market in the future.
How does Numerai work?
The data experts take part in a kind of competition for the best forecast model and use encrypted data sets that represent stock market information to calculate forecast models.
For this purpose, the data scientists create an algorithm to discover corresponding data patterns. The forecasts for the capital market and share price development are then uploaded to the website. To date, Numerai has received 40 billion such predictions, and Numerai currently receives 100 million predictions per day.
The corresponding forecast models are ranked, with the 100 best data experts being paid with Bitcoins. There will be a change from September 30th, then payment will be made by Ether or Numeraire. The highlight: the better the predictions or the higher the ranking of the data expert, the more numeraire he receives.
The prediction bets are not entirely risk-free for the data scientist. Participating data experts have to use part of their numeraire for a certain period of time in which the effectiveness of the forecast model is checked (staking).
If the data scientist is wrong with his forecast, numerals are destroyed, which is intended to preserve the quality of the forecasts. If the data expert is correct, the numeraire will be returned and Bitcoins on top. The payout is currently limited to US $ 15,000 per month, with which top experts can currently earn up to US $ 54,000 per year. According to Numerai, a total of US $ 200,000 has already been paid out to data scientists.
Conclusion: Numerai is an interesting, but open-ended project
Numerai wants to pay data experts with its crypto currency Numeraire, who should ultimately ensure a better return. It remains to be seen whether large amounts of data and predictive models based on artificial intelligence will actually lead to better returns on the stock market.
Numerai has yet to prove that the concept works. In theory, the power of data should make the hedge fund perform better, which should allow more capital to flow into the hedge fund.
This in turn should lead to more sales for the Numerai partners and thus to higher payout rates to the data scientists, which should also increase the value of the crypto currency Numeraire. Investors who are invested in the Numeraire Token can also benefit from this increase in value.
However, investors should note that crypto currencies fluctuate very strongly and the market is heavily influenced by speculators. Rapid price gains, but also high price losses are the order of the day. That is why investments in cryptocurrencies are generally only suitable for speculatively oriented investors.
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