Mailbag: Why You Should Steer Clear of Crypto Trading Bots

Q: Andy, I know you cast a wide net in searching for startups to invest in. What’s the sector that is most challenging to get a bead on?

A: That’s a tough one. The easy answer is consumer markets. It’s really tough to figure out what consumers will like six months from now, never mind five or 10 years down the road. That’s why I stay away from companies jumping on hot trends.

But let me go in a different direction here. I apply a five-question test to every company I look at.

  1. Does it have (or can it develop) the technology?
  2. Can it build the product?
  3. Can it market the product?
  4. Does it solve a big problem or address a big market?
  5. Can it do all of these things better than the competition?

One of the industries where it’s hardest to answer these questions is robotics. The technology is hard to perfect. A good analogy is driverless cars.

We’re about 80% of the way there in terms of getting autonomous vehicles onto the road – and it hasn’t been easy. Only a handful of companies will be rolling out Level 4 driverless cars in the next year or two, and not a single car company has mastered Level 5. (Level 4 cars can drive on pre-mapped routes and handle anything on their planned course without driver intervention. Level 5 cars are so independent that there’s no steering wheel.)

Building a robotics product is also hard. The prototype is an extremely complex undertaking. Scaling production presents an entirely new set of difficulties. And marketing a robotics product is tricky because the category is so new.

There are dozens of companies working with cutting-edge technology to make robots never seen or deployed before. And each is determined to outdo the others.

How can an investor be sure that a company that’s in the lead today will still be at the head of the pack five or 10 years from now?

Well, robotics is one of the most impactful future industries I know. So I fully expect it to spawn several huge world-beating companies. There’s no way I’m going to ignore this sector. I’m looking forward to delving in and taking a shot at a couple of robotics companies that excite the hell out of me.

The financial reward for getting just one company right in this industry could be off the charts.

+ Early Investing Co-Founder Andy Gordon

Q: Is it possible to make, say, $100 a day by day-trading crypto using a bot?

A: My advice is to steer well clear of trading bots and hold high-quality cryptos like bitcoin instead.

I’ve never seen any legitimate crypto bot programs. Perhaps some exist. But if they do, I suspect the bots’ owners would simply use them privately or sell them to hedge funds for millions of dollars.

I would be very careful with programs like these. There have been cases where the program carries what’s called a “Trojan horse virus.” So it’s possible that hackers could use such a “bot” to take control of your computer and steal your coins.

Never download anything that you aren’t 100% sure is legitimate. The problem is, it can be very hard to tell if crypto trading bot programs are real. My guess is that 95% of them are not, and the other 5% don’t make money. So the safest choice is to simply not use them.

Buying and holding high-quality cryptocurrencies is the best way to make money in this space. Historically, this strategy has yielded incredible returns. And as long as you have good passwords and security practices, it’s also very safe (unlike bots or day trading).

+ Early Investing Co-Founder Adam Sharp