Bitcoin Price Prediction using Bayesian Regression Approach

Yuhan Wang and Yaxu Wang

St 540, North Carolina State University, Raleigh, NC 27695, USA

INTRODUCTION Log Return Model Price Prediction Model

Proposed Model Proposed Model

Bitcoin is a cryptocurrency that tends to make the worldwide
payment process convenience. The bitcoin was invented by Satoshi
𝜇𝜇𝐿𝐿𝑅𝑅 = 𝛼𝛼 + 𝛽𝛽1 𝐿𝐿𝐿𝐿𝐸𝐸𝐸𝐸𝐸𝐸 + 𝛽𝛽2 𝐿𝐿𝐿𝐿𝑋𝑋𝑋𝑋𝑋𝑋 + 𝛽𝛽3 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 = 𝛼𝛼 + 𝛽𝛽1 ∗ 𝑃𝑃𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵−1 + 𝛽𝛽2 ∗ 𝑃𝑃𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸−1 +
Nakamoto in 2009. Throughout the eight years, the price of bitcoin
increased from 3 cents to 20000 dollars late 2017. The trading 𝐵𝐵𝐵𝐵𝐵𝐵 𝛽𝛽3 𝑃𝑃𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖−1 + 𝛽𝛽4 𝑆𝑆𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖−1 + 𝛽𝛽5 𝑆𝑆𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖−1
mechanism of bitcoin is similar to stock market. Besides bitcoin,
there are thousands of other cryptocurrencies been invented in the 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿: 𝐿𝐿𝐿𝐿𝐵𝐵𝐵𝐵𝐵𝐵 ~Normal 𝜇𝜇𝐿𝐿𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 , 𝐼𝐼𝐼𝐼𝐼𝐼. 𝑣𝑣𝑣𝑣𝑣𝑣 Convergence
past five years.(i.e. Ethereum (ETH), Litecoin(LTC), Ripple(XRP))
It is believed that the bitcoin price has some correlation with
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 ∶ 𝛽𝛽1 ~dnorm(0,0.001)
the movements of other currencies. To understand this relationship, 𝛽𝛽2 ~dnorm(0,0.001)
bitcoin was used as response, whereas Ethereum, Litecoin and
Ripple were used as predictors. These four cryptocurrencies 𝛽𝛽3 ~dnorm(0,0.001)
contained over 85% of crypto-market capitalization. α~dnorm(0,0.001)
OBJECTIVES 𝐼𝐼𝐼𝐼𝐼𝐼. 𝑣𝑣𝑣𝑣𝑣𝑣~dgamma(0.01,0.01)
1. Study the log return correlation between bitcoin and other
currencies.
2. Using the result of log return to select the significant parameter Convergence
and develop a Bayesian Model of the price of bitcoin. Prediction
3. Using the model to predict the price of bitcoin of the next day.
4. Get everybody rich!

Log Return

𝑃𝑃𝑖𝑖+1
𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐿𝐿𝐿𝐿𝐿𝐿 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = ln( )
𝑃𝑃𝑖𝑖
1. It measures all variables in a comparable metric, thus enabling
evaluation of analytic relationships amongst two or more
variables despite originating from price series of unequal values.
2. If the price is log normal distributed, the log return is normally
distributed..
3. Time additivity: the sum of a series of log normal is still normal CONCLUSIONS
distributed..
BTC log return in positive correlated with ETH and LTC log return.
It is suggested to purchase ETH or LTC in a day that BTC log return is
positive.
The second day price of bitcoin is successfully predicted by the previous
day’s price, ETH price, LTC price and market share of different coins.
The model is limited, since it can only predict the price of the second
day. To develop a model to predict a general trend, more time insensitive
predictors are needed.

NC STATE UNIVERSITY