This document outlines steps to forecast the net profit for Bitcoin in May 2015. It involves collecting Bitcoin price data, conducting exploratory analysis to isolate the stationary 2015 price series, fitting and comparing time series models like Holt-Winters and ARIMA, and selecting the best model. The ARIMA model is identified as the best for forecasting. Further analysis is recommended, including cross validation and incorporating volume information.

1. Bitcoin Price Forecasting
Naveen Venkataraman
June 4th, 2015

2. Goal: Forecast Net Profit For May 2015
• Collect BTC Data
• Analyze Price Volatility
• Isolate Stationary Series
• accounting for stationarity, seasonality and trends
• Comparison of Models, Forecasts and Metrics
• Potential Model Improvements / Follow-up Analysis

3. STEP1: FETCHBTC PRICEDATA

7. STEP2: CONDUCTEXPLORATORYANALYSIS

8. summary(btc.data)
OHLC, Volume, Date Ranges

9. tsdisplay(btc.data)

10. adf.test(btc.data)

11. plot(decompose(ts(data,frequency=365),type=type))
Separating out trend and seasonality

12. STEP3: ISOLATE 2015PRICES
(TOCREATETRAIN/TESTDATA)

18. 2015DataisStationary

19. Train:Jan–Apr2015
Test:May2015(28days)

20. JAN–APRdata:PossiblyanMA(2)process

21. STEP4: MODELFITTINGAND FORECASTING

22. HoltWinters1
Exponential smoothing
With trend
Without seasonal component

23. HoltWinters2
Exponential smoothing
Without trend
Without seasonal component

24. ARIMA

25. ARFIMA
fractional differencing

26. ForecastingMetricsIndicateARFIMAToBeTheBestModel
Holt Winters (without trend and without seasonality) is next best

27. Follow-on Analysis
• Use Cross Validation for tuning parameters
• Factor in Volume information in relation to price
• Estimate discontinuous / missing information on certain
trading days
• Use Complete dataset (2011 – 2015)
• Weigh recent information more
• Smooth Extreme Volatility
• Evaluate Co-pair trading strategy with other asset classes
• Gold
• Currencies

28. APPENDIX

29. Using Quandl
• Setup an account (FREE)
• Get an API KEY (FREE)
• Install Quandl library (based on platform)
• Choose data exchange format
• Supported platforms: https://www.quandl.com/tools/full-list

30. Learning About Bitcoin
• “Mastering Bitcoin”
by Andreas
Antonopoulos
• MOOC:
http://digitalcurrency
.unic.ac.cy/free-
introductory-mooc
• MIT
• Bitcoin Club
• Media Lab