Project Proposal: Bitcoin Price Prediction Using Machine Learning Algorithms

1. Introduction

Bitcoin, the first decentralized cryptocurrency, has emerged as a popular investment asset, attracting
investors worldwide. Given its highly volatile nature, accurate prediction of Bitcoin prices is crucial
for making informed investment decisions. In this proposal, we outline a project aimed at leveraging
machine learning algorithms to predict Bitcoin prices based on historical data and technical indicators.

2. Background

Bitcoin was introduced in 2009 by an unknown person or group of people using the pseudonym
Satoshi Nakamoto. Since then, it has experienced significant price fluctuations, with periods of rapid
growth followed by sharp declines. Despite its volatility, Bitcoin has gained mainstream acceptance as
a legitimate asset class, prompting the need for reliable price prediction methods.

3. Objectives

The primary objective of this project is to develop machine learning models capable of accurately
predicting Bitcoin prices. Specific objectives include:

1. Collecting and preprocessing historical Bitcoin price data.

2. Selecting relevant technical indicators for feature extraction.
3. Evaluating different machine learning algorithms for prediction accuracy.
4. Analyzing the impact of technical indicators on prediction performance.
5. Providing insights and recommendations for investors based on the findings.

4. Literature Review

A review of existing literature on Bitcoin price prediction reveals a variety of approaches, including
statistical models, machine learning algorithms, and hybrid methods. While some studies have
achieved promising results, others have faced challenges such as overfitting and data sparsity. This
project aims to build upon existing research by exploring novel machine learning techniques and
incorporating a diverse set of technical indicators.

Phaladisailoed et al. Used 1-minute interval trade data from January 1, 2012, to January 8, 2018, via
the Kaggle website to predict Bitcoin values using the LSTM, GRU, Theil-Sen, and Huber regression
models. Theil-Sen and Huber and other regression models were tested using the scikit-learn and Keras
libraries, and the findings revealed that GRU and LSTM performed superior to them. With an of
0.00002 and an R2 of 0.992, GRU had the best accuracy, however, it took more time than Huber
regression. They have solely used R2 metrics to assess their models. Evaluating using only linear
regression models makes them unable to compute non-linear relations between variables.
Seabe et al. used three different types of RNN, including LSTM, GRU, and Bi-Directional LSTM.
The study focuses on Bitcoin, ethereum, and Litecoin, three of the most popular cryptocurrencies, and
measures the performance of the models using Mean Absolute Percentage Error (MAPE) and RMSE.
According to the experimental findings, Bi-LSTM fared better than LSTM and GRU in terms of
prediction accuracy, with the lowest MAPE values for Bitcoin, Litecoin, and Ethereum being 0.036,
0.041, and 0.124, respectively. However, they did not take into account any ensemble machine
learning models and instead just compared deep learning algorithms. Only RMSE and MAPE
measures were used to evaluate their models.
Vanderbilt et al. Tested 3 distinct cryptocurrencies — Bitcoin, Litecoin, and Ripple—using 3
different RNN models—Simple RNN, LSTM, and GRU. From January 2015 to March 2020, they
used historical price information from coinmarketcap.com. In an effort to improve the model’s
accuracy, they have also run further tests using new data from Google Trends for the same time
period. They came to the conclusion that the three procedures were comparable in accuracy to one
another. Additionally, the accuracy did not improve further after conducting additional experiments
utilizing the data from Google Trends. They simply used the RMSE statistic to evaluate their model,
and they subsequently tried to improve the output by training them with each cryptocurrency’s daily
closing price including or excluding Google Trends information. To improve the validity of the
forecast results, other evaluation metrics along with RMSE were used in this thesis.
Kim et al. have tested on three cryptocurrencies namely Bitcoin, Ethereum, and Litecoin using LSTM
and GRU deep learning algorithms. The datasets were chosen from coinmarket based on kurtosis and
skewness. LSTM and GRU models are trained and tested on the same hyperparameter configuration
while increasing the number of epochs from 1 to 30. The accuracy of each model is measured by
RMSE and MAE. After the testing phase, they concluded that GRU was more advantageous for the
downward stabilization trend, and the LSTM was suitable for the upward stabilization trend.
Iqbal et al. focused on finding the most efficient technique out of ARIMA, FB Prophet, and
XGBoosting for predicting the future price of Bitcoin based on RMSE, MAE, and R2 parameters.
After their experimentation on all three algorithmic techniques, they found out that the parametric
score of ARIMA is the best of all three considered techniques. They have used the Kaggle dataset’s
historical price data and pre-processed that data and used it to build their models for comparison.
They have mostly focused on supervised machine learning algorithms and have not considered any
other type of algorithms for their comparison. On the other hand, our comparative analysis is based on
a mixture of both Supervised learning models RF, GB and RNN models LSTM, GRU.
In order to determine the future trends of the Ethereum cryptocurrency, Kumar et al. used deep
learning techniques including the Multi-Layer Perceptron (MLP) and LSTM, and evaluated their
findings using the RMSE, MAE, and metrics. They have made a long-term prediction and computed
values for each day, hour, and minute using previous pricing data. They used daily data that included
open price, closing price, high and low, volume per day, and hourly data from August 2015 to August
2018. They came to the conclusion that the LSTM model is superior to the MLP in terms of
robustness and accuracy for long-term reliance. Our models were trained using the dataset that
contained the technical indicators EMA, SMA, RSI based on the historical price data.

5. Methodology

Data Collection and Preprocessing:

- Historical Bitcoin price data will be collected from reputable sources such as cryptocurrency
exchanges.
- Data preprocessing techniques, including cleaning and normalization, will be applied to ensure data
quality.

Feature Selection
- Relevant technical indicators such as moving averages, relative strength index (RSI), and
exponential moving averages (EMA) will be selected for feature extraction.
- Additional features such as trading volume and market sentiment may also be considered.
Model Selection and Training

- A variety of machine learning algorithms, including decision forest, logistic regression and support
vector machine, will be evaluated for prediction accuracy.
- Models will be trained using historical price data and technical indicators, with hyperparameter
tuning to optimize performance.

6. Experimental Setup

Dataset
- Historical Bitcoin price data spanning multiple years will be used for model training and testing.
- The dataset will be split into training and testing sets to evaluate model performance.

Evaluation Metrics
- Model performance will be evaluated using metrics such as mean squared error (MSE), root mean
squared error (RMSE), and accuracy.

7. Proposed System

The proposed system will consist of machine learning models trained on historical Bitcoin price data
and technical indicators. Models will be evaluated based on their ability to accurately predict future
price movements, with a focus on both short-term and long-term forecasting.

8. Expected Outcomes

- Development of machine learning models capable of predicting Bitcoin prices with high accuracy.
- Identification of key technical indicators that significantly impact prediction performance.
- Insights and recommendations for investors based on the analysis of prediction results.

9. Timeline

- **Data Collection and Preprocessing**: 1 month

- **Feature Selection and Model Development**: 2 months
- **Model Training and Evaluation**: 2 months
- **Analysis and Reporting**: 1 month

10. Budget

The project will require funding for data acquisition, computational resources, and personnel. A
detailed budget breakdown will be provided upon request.

11. Conclusion

In conclusion, this project aims to develop machine learning models for predicting Bitcoin prices
based on historical data and technical indicators. By leveraging advanced machine learning
techniques, we hope to provide valuable insights into Bitcoin price trends and assist investors in
making informed decisions.