This study surrounds a financial technology company that specializes in algorithmic cryptocurrency trading by utilizing sophisticated probabilistic models to drive automated trade execution. Launching in 2020 with a minimal three-person team, the owners served a vital role in the platform development, and continue to be an integral part of the company's future. From signal identification to the creation of trading algorithms, they remain imperative to all aspects of their workflow.
One of the challenges of development when it comes to blockchain and cryptocurrency is that it is still in its relative infancy. Most developers do not have the types of resources available to development teams working on traditional software and platforms. As such, when this company started its work much of it was from a blank slate. This started with the development of their alpha model. Their first model for predicting market movement was based on analysis and identification of signals in the data they were receiving in real-time from the various exchanges that represented larger market trends.
The research process at this company was highly collaborative and was focused on improvement in the performance, functionality, and reliability of these systems. Initial alpha model development began with a manual study of long positions. They simultaneously worked on developing a model for short-term strategies that changed daily. Once their alpha model was developed, the team began the perilous process of testing their model and trading algorithms. Unlike companies with history and strong capitalization, being a small entity forced the team to utilize their capital to test their trading system.
Through continued trade execution, analysis, and evaluation, the team was able to validate the accuracy of their probabilistic model and the reliability of their trading algorithms for order execution.
Another area where this company spent a lot of development effort was data warehousing. Like most companies that specialize in algorithmic trading, the need for historic data storage was paramount. This would allow them to back-test their alpha mode utilizing real historic data in a simulation environment without the need to utilize their actual managed funds to test future models and algorithms.
The total combined federal and state tax credit for this company was approximately $250,000 for their first full year of development. While the company did qualify for the startup small business payroll tax offset, their immensely successful first year allowed them to take their credit against their normal tax liability.
The total federal and state tax credit
For their first full year of development