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Predictions of bitcoin prices through machine learning based frameworks.
Luisanna Cocco1, Roberto Tonelli1, Michele Marchesi1
1Department of Mathematics and Computer Science, University of Cagliari, Cagliari, Italy.
Peerj. Computer Science
|April 9, 2021
Summary
High volatility in Bitcoin trading can lead to significant profits. This study found that a single-stage Bayesian Neural Network framework offers the best performance for predicting daily closing Bitcoin prices.
Area of Science:
- Financial Markets
- Computational Finance
- Machine Learning
Background:
- Asset volatility is often viewed negatively, but it presents opportunities for profitable short-term trading, especially in cryptocurrencies like Bitcoin.
- The profitability of cryptocurrency trading has increased due to high market volatility.
- Predicting Bitcoin's daily closing price is crucial for optimizing trading strategies.
Purpose of the Study:
- To compare the performance of various machine learning frameworks for predicting the daily closing Bitcoin price.
- To identify the most effective framework through rigorous model selection using k-fold cross-validation.
- To evaluate both single-stage and two-stage prediction frameworks.
Main Methods:
- Implemented and evaluated single-stage frameworks: Bayesian Neural Network (BNN), Feed Forward Neural Network (FFNN), and Long Short-Term Memory (LSTM) Neural Network.
- Developed and assessed two-stage frameworks, cascading BNN, FFNN, or LSTM with Support Vector Regression (SVR).
- Utilized k-fold cross-validation for robust model selection and performance evaluation.
Main Results:
- Two-stage frameworks generally outperformed their single-stage counterparts, except when BNN was involved.
- The single-stage Bayesian Neural Network framework demonstrated the highest predictive performance.
- The Mean Absolute Percentage Error (MAPE) for the BNN framework aligns with values reported in existing literature.
Conclusions:
- The Bayesian Neural Network, as a single-stage framework, is the most effective model for predicting daily closing Bitcoin prices.
- While ensemble methods show promise, the BNN's standalone capability in this context is superior.
- The findings provide valuable insights for cryptocurrency traders and researchers focusing on price prediction accuracy.