Bitcoin Price Forecasting using Deep Learning
Devansh R. Parikh
NMIMS University, devansh.parikh@gmail.com
Abstract - Bitcoin is a cryptocurrency launched in 2008
as a means of transaction between members without any
intermediaries. Among their many characteristics,
Bitcoin price s highly volatile; with it skyrocketing or
suddenly falling. Hence, traders are always looking
forward to methods of accurately predicting the price
trend. In this paper, we apply machine learning and deep
learning methods,to forecast the price of Bitcoin and
compare the results with traditional time series
algorithm ARIMA. We use two variants of the popular
LSTM model and XGBoost algorithm, with the
univariate LSTM outperforming all other models.
Index Terms - Bitcoin, Time Series, Deep Learning, LSTM,
XGBoost, SARIMA
INTRODUCTION
Bitcoin is the world,s most popular and valuable
cryptocurrency that is traded in over 40 exchanges
worldwide. ​It is a decentralized digital currency without a
central bank or single administrator that can be sent from
user to user on the peer-to-peer bitcoin network without the
need for intermediaries.
Bitcoin was invented by an unknown person or group of
people using the name Satoshi Nakamoto and released as
open-source software in 2009. Bitcoins are created as a
reward for a process known as mining. They can be
exchanged for other currencies, products, and services. They
are all stored in a digital cryptocurrency wallet.
Bitcoin prices are highly volatile with sudden jumps and
drops especially during the time of August 2017 to July
2018 with the price going as high as US$ 19,343. (December
16, 2017).
The underlying technology of every cryptocurrency
including Bitcoin is the Blockchain. Blockchain acts as a
decentralized public database that preserves anonymity and
creates trust between members. Trust is the result of
consensus protocols like Proof-of-Stake (PoS),
Proof-of-Work (PoW), Proof-of-Knowledge (PoK), and
distributed consensus. A ledger is maintained that hold the
record for every valid transaction ever made in the
cryptocurrencies network. This decentralized environment
and the verification measures implemented make
Blockchains tamper proof, and these lay the foundation for
cryptocurrency foundation.
Cryptocurrency not only involves the exchange of digital
assets, but also smart contracts and decentralized
applications. This transformation of cryptocurrencies is
categorized as Blockchain 1.0, 2.0 and 3.0. Bitcoin is an
example of Blockchain 1.0, since it only allows the transfer
of digital tokens i.e. Bitcoins.
As a currency, Bitcoin offers a novel opportunity for price
prediction due its young age and high volatility, which is far
greater than that of traditional currencies. However, of all
the papers published on Bitcoin, very few deal with machine
learning and deep learning algorithms. To allow for a
comparison with traditional forecasting approaches, an
ARIMA model is also developed for performance
comparison with machine learning and deep learning
models.
LITERATURE SURVEY
Ruchi Mittal, Shefali Arora and M.P.S Bhatia (2018)[1]
have explored how the features in the bitcoin network
explain its price hike.They monitor the change in the
activities over time and relate them to economic theories.
Their dataset consists of over nine features relating to the
cryptocurrency price recorded daily over the period of 6
months.Multivariate linear regression has been used to
predict the highest and lowest prices of cryptocurrency. In
this model, multiple independent variables contribute to a
dependent feature with the help of multiple coefficients. For
this study,they acquired data from the public Blockchain of
Bitcoin and API’s of online resources. In the dataset, they
have made use of the following independent features to
determine the highest price of cryptocurrencies. These
features are: Open, Low, Close.
Muhammad Saad, Aziz Mohasien (2018)[2] monitor the
changes in Bitcoin activities over time and relates then to
economic theories to identify key network features and
determine the demand and supply dynamics of a
cryptocurrency. Finally they use machine learning method to
construct models that predict Bitcoin price. They collect
Bitcoin’s data over more than 20 months and estimate the
most signicant features that inuence the price. They
computed the correlation between features such as hash rate,
number of users, transaction rate, total bitcoins and price.
They then map the change in features on users and network
activities to understand the dynamics of Bitcoin. For this
study, they acquired data from the public Blockchain of
Bitcoin and API’s of online resources. The dataset included
features such as the number of wallets, unspent transaction
outputs (UTXO’s), mempool size, block size, mean
conrmation time, miner’s income, transactions per day,
transactions per block, unique Bitcoin addresses, cumulative
networks hashing rate, network’s difculty, fee, fee per
transaction, system-wide total bitcoins, trade volume and the
market price of Bitcoin. The paper implements a regression
approach with Linear Regression, Decision tree and
Gradient Descent. It also implements a Deep Learning
Approach and used conjugate gradient algorithm with linear
search for price prediction.
Siddhi Velankar, Sakshi Valecha, Shreya Maji (2018)[3]
have made an attempt is made to predict the Bitcoin price
accurately taking into consideration various parameters that
affect the Bitcoin value. For the first phase of the analysis,
they aim to understand and identify daily trends in the
Bitcoin market while gaining insight into optimal features
surrounding Bitcoin price. The data set consists of various
features relating to the Bitcoin price and payment network
over the course of five years, recorded daily. For the second
phase of the analysis they try to predict the sign of the daily
price change with highest possible accuracy. Database
collection is done from Quandl and CoinMarketCap. This is
time-series data, from over a time period of five years at
different time instances based on the nature of Bitcoin
transactions. It is also normalized and smoothened using
methods like log normalization, Standard deviation
normalization and Z-score normalisation. Two algorithms
i.e. Bayesian Regression and GLM/Random forest were
proposed.
Sean McNally, Jason Roche, Simon Caton (2018)[4] attempt
to ascertain with what accuracy the direction of Bitcoin price
in USD can be predicted. This paper achieves varying
degrees of success through the implementation of a Bayesian
optimised recurrent neural network (RNN) and a Long Short
Term Memory (LSTM) network. The popular ARIMA
model for time series forecasting is implemented as a
comparison to the deep learning models. As expected, the
non-linear deep learning methods outperform the ARIMA
forecast which performs poorly. The LSTM achieves the
highest classication accuracy of 52% and a RMSE of 8%.
Manual grid search and Bayesian optimisation were utilised
in this study. Grid search, implemented for the Elman RNN,
is the process of selecting two hyperparameters with a
minimum and maximum for each. Similar to the RNN,
Bayesian optimisation was chosen for selecting LTSM
parameters where possible. This is a heuristic search method
which works by assuming the function was sampled from a
Gaussian process and maintains a posterior distribution for
this function as the results of different hyperparameter
selections are observed.
Finally, both deep learning models are benchmarked on both
a GPU and a CPU with the training time on the GPU
outperforming the CPU implementation by 67.7%. The
independent variable for this study is the closing price of
Bitcoin in USD taken from the Coindesk Bitcoin Price
Index. To assess the performance of models, the root mean
squared error (RMSE) of the closing price is used to further
encode the predicted price into categorical variable
reecting: price up, down or no change. The dependent
variables for this paper come from the Coindesk website,
and Blockchain.info. In addition to the closing price, the
opening price, daily high and daily low are also included as
well as Blockchain data, i.e. the mining difculty and hash
rate. The features which have been engineered (considered
as technical analysis indicators ) include two simple moving
averages (SMA) and a de-noised closing price. The RNN
and LSTM both performed well, however LSTM performed
better and more capable in recognising long term
dependencies.
Wu, Chih-Hung, Ma, Yu-Feng, Lu, Chih-Chiang, Lu,
Ruei-Shan (2018)[5] talk about Long short-term memory
(LSTM) networks, which are a state-of-the-art sequence
learning in deep learning for time series forecasting. The
paper proposes two LSTM for new forecasting techniques -
conventional LSTM and LSTM with AR(2) model. The
paper is basically a comparison between the two models and
indicates how the LSTM with AR(2) model is superior and
achieves higher accuracy than conventional LSTM. Metrics
evaluate are Mean squared error (MSE), root mean square
error (RMSE), mean absolute percentage error (MAPE)
and mean absolute error (MAE). The paper states that due to
lack of seasonality of cryptocurrency markets and it's high
volatility, time series methods are not very effective for this
task. Two methods are used: In method 1 ACF and PACF is
calculated directly, without considering limitation of time
series method, and find the number of periods of price lag
by its graphical features. This used in LSTM. In the second
method that is used is the traditional time series method to
perform ADF unit root test on the Bitcoin price. The second
stage is the demonstration of three models. The first model
is conventional LSTM method that uses the original bitcoin
closing price series and trade volumes directly for training
and prediction with LSTM. The second model is the
proposed hybrid LSTM method. The method first uses the
ACF and PACF graphical features of the bitcoin price to
find the p (price lag period) and q (moving averaging
period), and the transaction volume as the predictive
variables, and then use LSTM for training and prediction.
The third model is the conventional time series method,
which is based on the time series verification procedure
described in stage 1, and is predicted by ARIMA or Transfer
Function Method (TF). In the final stage, the prediction
results of the three models are calculated respectively, such
as MSE, RMSE, MAE and MAPE, to evaluate the three
models, which have better predictive ability. In conclusion,
the proposed LSTM forecasting framework can overcome
and improve problem of input variable selection in LSTM,
thereby eliminating the need for researchers to have domain
knowledge and trial and error to determine the optimal
selection of input variables.

METHODOLOGY
A. DATASET
The independent variable for this study is the closing price
of Bitcoin in USD taken from the Kaggle Historic Coin
dataset, which consists of minute to minute data of Open ,
High, Low, Close, Volume in BTC and indicated currency,
and weighted bitcoin price. The dataset Bitcoin dataset
used, ranges from the 1st of January 2012 until the 13th of
March 2019.
B. DATA PREPROCESSING
The data has a lot of missing values. Volume/trades are a
single event so fill NAN’s with zeros for relevant fields.
next we need to fix the OHLC (open high low close) data
which is a continuous time series se we forwards fill those
values. We then group the minute to minute data to an hour
by taking mean of the values. The data is scaled using
Min-Max Scalar, that is scaled between 0 and 1 using the
maximum and minimum value in that dataset. It basically
helps to normalise the data within a particular range.
Sometimes, it also helps in speeding up the calculations in
an algorithm.A plot of all the cleaned data features can be
seen in figure I.
C. MODELS
We explore how the following models work on the Bitcoin
data: LSTM, XGBoost and SARIMA time series. We look
and compare the different metrics like MAE (Mean Absolute
Error) and, RMSE (Root Mean Square Error).
Appropriate methods of finding parameters are critical to
model performance. We used Grid Search CV to optimise
the parameters for XGBoost, and tested various deep
learning models for the LSTM both using univariate and
multivariate input data.We use the SARIMA model for
traditional time series forecasting and grid search various
parameters until we converge on the best model. All of the
implementation was done in Python, where we used Keras
for the deep learning models. We have predicted the future
values of “Close” from the dataset.
IMPLEMENTATION
A. LONG SHORT TERM MEMORY (LSTM) NETWORK
LSTM’s are a type of Recurrent Neural Network. Recurrent
networks, take as their input not just the current input
example they see, but also what they have perceived
previously in time. The decision a recurrent net reached at
time step t-1 affects the decision it will reach one moment
later at time step t. So recurrent networks have two sources
of input, the present and the recent past, which combine to
determine how they respond to new data. Adding memory to
neural networks has a purpose: There is information in the
sequence itself, and recurrent nets use it to perform tasks
that feedforward networks can’t.
In the mid-90s, a variation of recurrent net with so-called
Long Short-Term Memory units, or LSTMs, was proposed
by the German researchers Sepp Hochreiter and Juergen
Schmidhuber as a solution to the vanishing gradient
problem.
LSTMs help preserve the error that can be backpropagated
through time and layers. By maintaining a more constant
error, they allow recurrent nets to continue to learn over
many time steps (over 1000), thereby opening a channel to
link causes and effects remotely.
The LSTM networks are composed of an input layer, one or
more hidden layers, and an output layer. The structure of
LSTM memory cell is illustrated in Fig. 2. Each of the
memory cell in LSTM network has three types of gates—the
forget gate, the input gate, and the output gate to maintain
and adjust its cell state St. 1. The forget gate ft defines which
information is deleted from the memory (cell state). 2. The
input gate it specifies which information is added to the
memory (cell state). 3.The output gate Ot specifies which
information from the memory (cell state) to be used as
output information [34]. At every time step t, LSTM decide
what information will remove from the cell state through the
decision by a transformation function (sigmoid or tanh) in
the forget gate layer. The input xt and its output ht-1 of the
memory cells at the previous time step t-1 and then outputs a
number between 0 and 1 for each number in the cell state
Ct-1. The number 1 denotes “completely keep this” while a
0 denotes “complete get rid of this” .[6]

We have implemented 2 LSTM models, one with
multivariate input data (Model 1) and the other with
univariate input data (Model 2). Both the models were
configured with early stopping criteria nand each was run on
100 epochs.
The architecture of both models is the same: 2 stacked
LSTM layers and 1 densely connected output neuron.
B. XGBOOST
XGBoost is an implementation of gradient boosted decision
trees designed for speed and performance. It is an ensemble
learning method.Ensemble learning offers a systematic
solution to combine the predictive power of multiple
learners. The resultant is a single model which gives the
aggregated output from several models.
The models that form the ensemble, also known as base
learners, could be either from the same learning algorithm or
different learning algorithms. Bagging and boosting are two
widely used ensemble learners.In Boosting, each tree learns
from its predecessors and updates the residual errors. Hence,
the tree that grows next in the sequence will learn from an
updated version of the residuals.
In contrast to bagging techniques like Random
Forest, in which trees are grown to their maximum extent,
boosting makes use of trees with fewer splits. Such small
trees, which are not very deep, are highly interpretable.
Parameters like the number of trees or iterations, the rate at
which the gradient boosting learns, and the depth of the tree,
could be optimally selected through validation techniques
like k-fold cross validation. Having a large number of trees
might lead to overfitting. So, it is necessary to carefully
choose the stopping criteria for boosting.
Boosting consists of three simple steps:
● An initial model F0 is defined to predict the target
variable y. This model will be associated with a
residual (y – F0)
● A new model h1 is fit to the residuals from the
previous step
● Now, F0 and h1 are combined to give F1, the
boosted version of F0. The mean squared error
from F1 will be lower than that from F0.
To improve the performance of F1, we could model after the
residuals of F1 and create a new model F2. This can be done
for ​‘m’ i​ terations, until residuals have been minimized as
much as possible.Here, the additive learners do not disturb
the functions created in the previous steps. Instead, they
impart information of their own to bring down the errors.[7]
Here, we implemented a XGBoost model using the
“xgboost” package in Python. Using Grid Search on an
XGBRegressor model, we get the best parameters with a
minimum child weight of 10 and a max depth of 15, among
others, with a learning rate of 0.1.
C. SARIMA
Seasonal Autoregressive Integrated Moving Average,
SARIMA or Seasonal ARIMA, is an extension of ARIMA
that explicitly supports univariate time series data with a
seasonal component.It adds three new hyperparameters to
specify the autoregression (AR), differencing (I) and moving
average (MA) for the seasonal component of the series, as
well as an additional parameter for the period of the
seasonality. Along with the 3 trend elements of ARIMA
(autoregression, difference order and moving average) 4
seasonal elements (autoregression, difference order, moving
average and number of time steps are added for
configuration.A seasonal ARIMA model uses differencing at
a lag equal to the number of seasons (s) to remove additive
seasonal effects. As with lag 1 differencing to remove a
trend, the lag s differencing introduces a moving average
term. The seasonal ARIMA model includes autoregressive
and moving average terms at lag s.We study the
Autocorrelation and Partial Autocorrelation plot, and
determine the range of features to grid search.[8]
When performing SARIMA, we group the data by
month instead of hours, to maintain seasonality. We use
SARIMA model from the statsmodel package in python, and
test the aic value of the different models, and the choose the
best model for analysis, with parameters: (1, 1, 1)x(2, 1, 0,
12).
RESULTS
We measure the performance of the models using metrics
like mean absolute error and root mean square error.
Mean Absolute Error (MAE)​: MAE measures the average
magnitude of the errors in a set of predictions, without
considering their direction. It’s the average over the test
sample of the absolute differences between prediction and
actual observation where all individual differences have
equal weight.

Root mean squared error (RMSE)​: RMSE is a quadratic

scoring rule that also measures the average magnitude of the
error. It’s the square root of the average of squared
differences between prediction and actual observation.
CONCLUSION

Deep learning models such as the LSTM are evidently

effective for Bitcoin prediction with the LSTM very capable
for recognising longer-term dependencies. However, a high
variance task of this nature makes it difcult to transpire this
into impressive validation results. As a result it remains a
Model MAE RMSE difcult task. There is a ne line between overtting a model
and preventing it from learning sufciently. Dropout is a
LSTM (Model 1) 294.26 393.98 valuable feature to assist in improving this. Despite the
metrics of sensitivity, specicity and precision indicating
LSTM (Model 2) 43.64 45.15 good performance, the actual performance of the SARIMA
forecast based on error was signicantly worse than the
XGBoost 365.84 387.96 neural network models. The LSTM outperformed the other
models marginally, but not signicantly. However, the
SARIMA 152.44 169.31 LSTM takes considerably longer to train. The XGBoost
The results of all the models for predicting the closing price model gave good results, but was overfit during training
of Bitcoin for 6269 days are shown in Fig. (2), respectively. One limitation of the research is that the model has not been
It can be seen from the two figures that the predicted values implemented in a practical or real time setting for predicting
of the models are close to the actual values, and the trend into the future as opposed to learning what has already
direction of the changes are also highly consistent. The happened. In addition, the ability to predict using streaming
results showed the train and validation loss meeting and data should improve the model. There are many more socal,
revealed a good fit for our LSTM model. Based on loss economic and political factors involved in BITcoin prices
function history of model, the forecasting error remain a that can largely affect the prices, like social hype. However,
stable status after 50 epochs. the LSTM and even XGBoost models scale well to the data
and predict the price well with an error in 10’s of US
Dollars.

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