Swissquote Bank SA upped its cryptocurrency game with the release of an exchange-traded product that will attempt to curb volatility by switching holdings between bitcoin and dollars.
The Switzerland-based online trader called its offering the first actively managed bitcoin certificate. Funds will be shifted between the digital currency and cash based on an algorithm that will use “technical signals” and sentiment expressed on social media to try to forecast the market. Trading will take place on the SIX Swiss Exchange.
Online trading firms, hedge funds and foreign-exchange platforms are launching new bitcoin products to try to get onboard a rally that has seen the biggest cryptocurrency surge eightfold this year. Traders are hungry for ways to hedge downside risk and adopt flexible positions after three separate slumps of more than 25 percent this year and a raft of commentators warning of a bubble.
“Investors are excited about the cryptocurrency but are unnerved by its volatility,” Peter Rosenstreich, the bank’s head of market strategy, said in an interview. “So we tried to build a trading algorithm that’s a protection against downside risks”
Swissquote said in a statement Thursday it will hold the cryptocurrency and a buffer of dollars that ranges from zero to 40 percent of the certificate’s portfolio, depending on its quantitative algorithmic trading strategy. The exposure is limited to bitcoin and cash, minus a 1.5 percent management fee and trading costs, it said.
Investor Mike Novogratz, who’s setting up a $500 million hedge fund to invest in digital currencies, said this week bitcoin will end the year at $10,000. The cryptocurrency fell 1 percent to $8,123.36 at 11:05 a.m. in London on Thursday.