Machine learning model for Bitcoin exchange rate prediction using economic and technology determinants

• DOI: 10.1016/j.ijforecast.2020.02.008
• Publication Date: 2020-04-03T04:55:25Z
• Authors: Wei Chen; Huilin Xu; Lifen Jia; Ying Gao
• Keywords: 0202 electrical engineering, electronic engineering, information engineering; 02 engineering and technology

Abstract In recent years, Bitcoin exchange rate prediction has attracted the interest of researchers and investors. Some studies have used traditional statistical and econometric methods to understand the economic and technology determinants of Bitcoin, few have considered the development of predictive models using these determinants. In this study, we developed a two-stage approach for exploring whether the information hidden in economic and technology determinants can accurately predict the Bitcoin exchange rate. In the first stage, two nonlinear feature selection methods comprising an artificial neural network and random forest are used to reduce the subset of potential predictors by measuring the importance of economic and technology factors. In the second stage, the potential predictors are integrated into long short-term memory (LSTM) to predict the Bitcoin exchange rate regardless of the previous exchange rate. Our results showed that by using the economic and technology determinants, LSTM could achieve better predictive performance than the autoregressive integrated moving average, support vector regression, adaptive network fuzzy inference system, and LSTM methods, which all use the previous exchange rate. Thus, information obtained from economic and technology determinants is more important for predicting the Bitcoin exchange rate than the previous exchange rate.