Empirical analysis of Bitcoin investment strategy: a comparison of machine learning and deep learning approach

Abstract

A digital currency known as a cryptocurrency uses blockchain technology to record transactions electronically, guaranteeing security and transparency. Cryptocurrencies, in contrast to conventional hard currency, are virtual or soft currencies; that do not exist in the actual world like coins or banknotes. Since all transactions occur digitally, cryptocurrencies are decentralized and frequently stand-alone from conventional financial institutions. Peer-to-peer transfers, increased anonymity, and often quicker transaction processing without middlemen are made possible by this. In this study, two machine learning models; autoregressive integrated moving average (ARIMA), extreme gradient boosting (XGBoost), and two deep learning models; long short-term memory (LSTM), bidirectional LSTM (Bi-LSTM) were compared. By employing past Bitcoin data from 2012 to 2020, we evaluated the models' mean absolute error (MAE) and root mean squared error (RMSE). Compared to other models, the Bi-LSTM model yields minimal RMSE scores of 67.18 and MAE scores of 24.73. This aids in capturing all temporal correlations, which are important for forecasting the price of Bitcoin.