ORIENS
Predicting the future of Bitcoin.

As part of a research project about the modeling of time series, Phyramid investigated various methods of forecasting financial time series. The Bitcoin market was chosen as it is not dominated by traders with low-latency connections as the stock market is[1]. Additionally, Bitcoin's volatility makes it an interesting market for trading.

Duration

Q4 2016

Industry

Finance

Trading success

While this project was only meant for research on time series in general, our implementation successfully predicted whether the price of Bitcoin will go up or down in the next 20 minutes with average accuracy between 60% and 80% on certain data sets from the Bitstamp exchange. This should not come as a surprise, as papers on the topic have shown the ability to triple an investment after 3 months of automated trading[2].

Historical patterns

The core approach was based on the idea that the current state of the market is similar to some previous state. That is, that history repeats itself. This approach was implemented with a rolling window cross-correlation technique.

Visualizing historical data

As can be seen in the these illustrations, many similar historical states could be identified for a single present state. These states are ranked by similarity to the present (lower is better).

Target
Rank 11
Rank 20
Rank 12
Rank 22

We believe that the largest potential for future work lies in the integration of social factors together with the existing financial factors. Social events often precede shifts in the market[2], giving this technique considerable potential for forecasting.

[1]:Zhang, K., 2014. Learning time series data using cross correlation and its application in bitcoin price prediction (Doctoral dissertation, MIT).
[2]:Garcia, D. and Schweitzer, F., 2015. Social signals and algorithmic trading of Bitcoin. Open Science, 2(9), p.150288.