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Digital currency Trend prediction

Introduction

The emergence of a self-organized market of cryptocurrencies whose value is generated primarily by


social consensus has naturally attracted interest from the scientific community. Recent results have
shown that the long-term properties of the cryptocurrency market have remained stable between
2013 and 2017 and are compatible with a scenario in which investors simply sample the market and
allocate their money according to the cryptocurrency’s market shares. While this is true on average,
various studies have focused on the analysis and forecasting of price fluctuations, using mostly
traditional approaches for financial markets analysis and prediction. With the adoption of different
AI technologies into the fintech field, various machine leaning, and deep learning algorithms and
architectures have proven worthy of being pursued and outperformed the traditional statistical
methods in some experiments making a solid case that AI driven decisions are the future.

What is the problem?


Informal description
We need a program to tell us when will a cryptocurrency thrive or go down the drain. Something to
forecast and anticipate the upcoming changes in the cryptocurrency market.
To put it simply digital currencies are a messy unstable high-risk high-reward market. They attract so
many people who are willing to risk everything and bet on the new gold and end up wasting their life
savings on a fake economic bubble. For traders and simple users alike, these fluctuations may even
cause bankruptcy.
Formalism

 Task: Prediction of the value of a certain cryptocurrency at a given time in the future.
Building a regression model (Statistical Time series, Deep learning) to forecast
cryptocurrencies in the short, medium and long term.
 Experience: Cryptocurrency Historical Data and real-time Data, containing currency values
and relevant features such as correlation with other currencies, news, and market
sentimental analysis.
 Performance:  Forecast accuracy metrics (MAPE, MSE, RMSE, sMAPE, MAZE…)
This is intended to improve forecasting accuracy by minimizing loss function, typically the
sum of squared errors

Assumptions

1- Supply and demand are a huge factor for Bitcoin’s value.


2- Bitcoin and some Altcoins are strongly correlated.
3- BTC’s most significant factor is time.
4- Electricity and hardware prices can significantly increase the cost of production.
5- Computational power is a major factor.
6- Quantum computing may become an important milestone in the crypto market.
7- Cryptocurrency is immune to artificial inflation.
8- High-Profile losses and bad new raise fear and affect trading.
9- Bitcoin is very suitable for high-inflation countries.
10- Block reward and doubling the cost of production affect the value of Bitcoin.
11- Holders of $10M BTC cannot Liquidate and withdraw their money without moving the
market.
12- RNN based algorithms are more accurate than statistical time series in forecasting
currencies.
13- BTC’s Hash-rate is a good indicator of the network health therefore a valid feature to be
considered.
14- Inflation of fiat currencies can eventually lead to crypto mass adoption.

Limitations

 Human Factor and sentiment


 Market Correction
 The level and nature of regulations imposed in dominating cryptocurrency markets
 Big withdrawal/liquidation
 Unforeseen events
 Mid-range to long term forecasting
 The level of cryptocurrency adoption in the future
Similar problems
I. Classic Statistical Approach:
Stock prices forecasting with ARIMA

Time Series Modeling with ARIMA and Prophet examples

https://github.com/susanli2016/Machine-Learning-with-Python/blob/master/Time%20Series
%20Forecastings.ipynb

II. Deep Learning Approach:


Forecasting with TensorFlow:

https://www.tensorflow.org/tutorials/structured_data/time_series

 single-step prediction

 Multi-step prediction
Forecasting using LSTM:

Figure 1 Global active power prediction vs real data points

Examples: - https://machinelearningmastery.com/how-to-develop-lstm-models-for-time-series-
forecasting/

- https://towardsdatascience.com/time-series-analysis-visualization-forecasting-with-lstm-
77a905180eba #LSTM

Why does the problem need to be solved?


Motivation
The rapid development of digital currencies during the last decade is one of the most controversial
and ambiguous innovations in the modern global economy. Significant fluctuations in the value and
exchange rate of cryptocurrencies and their high volatility, resulted in significant risks associated
with investment into crypto assets (Bitcoin’s 2017 drastic crash).

Solution Benefits
The solution should provide valuable trading intel and predictions for short to medium term dates.
Knowing when to bid on a certain coin and when to opt out can be very crucial for simple users and
professional traders.

Solution Use(where)
- Cryptocurrency trading and insights platforms.

How would I solve the problem?


Data Collecting and Preparation

The free sources of the internet provide little to no accurate data when it comes to historical
cryptocurrency data, looking into sources like Kaggle or DataWorld is not recommender as it may fail
to deliver reliable and trustworthy datasets. Therefore, I decided to look for authentic reliable
sources, mainly Crypto API providers. In this list I have listed the best solutions currently in the
market with pros and cons and pricing.

1) Coinmarketcap https://coinmarketcap.com/

-offers 1 month of historical data for 29$ ( not cost efficient )

-workaround: partly vulnerable to semi-automatic web scrapping

2) Coincap https://coincap.io/

- free-to-use

- poor historical data (needs more research)

- historical data maximum interval of 1 day

3) Cryptocompare https://min-api.cryptocompare.com/

- social data API

- news API

- 100,000 free monthly calls

- maximum of 7 days worth of historical data

4 ) Coingecko https://www.coingecko.com/

- free-to-use

- provides up to 7 years in historical data

- 100 api calls per minute

- provides non-market data such as social community statistics, events and global markets

Program Design
To solve this problem our program should be a deployed forecasting model with a clear output to be
used.

Experiments needed
The experiments needed to start building a model would be using different deep learning
architectures on experimental data. The resulting benchmarks will help me chose a suitable
architecture for the forecasting problem at hand.

I will be using the following architectures; LSTM / RNN / CNN / MLP. And following the CRISP-DM
model
Figure 2 CRISP-DM ML project life cycle