Predicting Cryptocurrency Price Change Direction from Supply-Side Factors via Machine Learning Methods

Cryptocurrency prices are highly variable. Predicting changes in cryptocurrency price is a hugely important topic to investors and researchers, with much existing research on demand-side factors. The goal of this research project is to design and implement machine learning models to predict future cryptocurrency price change direction based primarily on supply-side factors. Different unsupervised machine learning techniques are used to build the predictive models. These techniques include K Nearest Neighbors (KNN), Artificial Neural Networks (ANN), Support Vector Machines (SVM), Naive Bayesian Classifier, and Random Forest Classifier. A dataset of 10 daily supply-side metrics for three prominent cryptocurrencies (Bitcoin, Ethereum, and Litecoin) at four different time horizons (ranging from one day to 30 days) are used to build and test the machine learning models. The outputs of these models indicate the predicted direction of the price movement over the time horizon (i.e., whether the price would go up or down), not the magnitude of the movement. Experimental results show that predictions were very unreliable for the shorter time spans but very reliable for the longest time spans. The Artificial Neural Network and Random Forest classifiers consistently outperformed the other techniques and achieved a prediction accuracy of over 90% in most models and over 95% in the best models. Experimental results show also that there is no significant difference in predictability between the three prominent cryptocurrencies.