Hello,

We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not an Insider? Subscribe now for unlimited access to online articles.

Intelligent Machines

New Hedge Fund Relies on an Anonymous Army of Coders to Turn a Profit

A San Francisco startup uses encrypted data streams, machine learning, and Bitcoin payments to crowdsource insights to inform its trades.

The hedge fund Numerai is unusually large in staff compared to its rivals, boasting over 7,500 developers. But what’s most unusual is that those employees can be entirely anonymous.

As TechCrunch reports, the San Francisco startup sends out encrypted trading data to coders that have signed up to work for it. They each develop different machine-learning techniques to make forecasts based on the data, then send predictions back to Numerai. If they’re useful, the data scientist gets paid in Bitcoin.

It sounds like a buzzword-fueled fever dream of a venture capitalist. But after a year of trading, its founder, Richard Craib, says that it’s making money. And the company recently closed a round of funding, securing $6 million, which at least suggests that the dream is one that investors think has legs.

Richard Craib

Algorithms certainly aren’t a new idea for hedge funds, and Numerai isn’t alone in using artificial intelligence to approach its business. Machine-learning approaches can crunch through extra data that humans would never have the time to process, and regular algorithms couldn’t make sense of. They can be used to mine insights from news coverage and social media, for instance, as well as spotting trends in unstructured data.

Indeed, many hedge funds are investing heavily in AI. And perhaps for good reason: the industry has come under fire this year from numerous parties for being overpriced while also underperforming. But while it sounds like a good idea to have a machine learn to spot trends, it remains to be seen how well such systems will work in the longer term. AI systems can be sensitive to uncertainty and noise, for instance—something that’s all too common in financial markets.

Numerai’s situation raises some of its own unique questions, too. The anonymity of its employees, for instance, means that it’s impossible to tell if the data scientists working for Numerai might also be involved with other companies and institutions that present a conflict of interest. And, as Wired notes, the company’s use of encryption is a delicate balancing act between speed and security that it will need to handle with care.

Still, it’s an interesting approach in an industry in need of a shot in the arm. Perhaps Wall Street may soon have its own army of anonymous data scientists, too.

(Read more: TechCrunchWired, Financial Times, “Crunching for Dollars,” “Will AI-Powered Hedge Funds Outsmart the Market?")

Keep up with the latest in artificial intelligence at EmTech MIT.
Discover where tech, business, and culture converge.

September 11-14, 2018
MIT Media Lab

Register now
Richard Craib
More from Intelligent Machines

Artificial intelligence and robots are transforming how we work and live.

Want more award-winning journalism? Subscribe to Insider Plus.
  • Insider Plus {! insider.prices.plus !}*

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus the digital magazine, extensive archive, ad-free web experience, and discounts to partner offerings and MIT Technology Review events.

    See details+

    Print + Digital Magazine (6 bi-monthly issues)

    Unlimited online access including all articles, multimedia, and more

    The Download newsletter with top tech stories delivered daily to your inbox

    Technology Review PDF magazine archive, including articles, images, and covers dating back to 1899

    10% Discount to MIT Technology Review events and MIT Press

    Ad-free website experience

/3
You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.