Using networks and partial differential equations to forecast bitcoin price movement

Abstract

Over the past decade, the blockchain technology and its Bitcoin cryptocurrency have received considerable attention. Bitcoin has experienced significant price swings in daily and long-term valuations. In this paper, we propose a partial differential equation (PDE) model on the bitcoin transaction network for predicting bitcoin price. Through analysis of bitcoin subgraphs or chainlets, the PDE model captures the influence of transaction patterns on bitcoin price over time and combines the effect of all chainlet clusters. In addition, Google Trends Index is incorporated to the PDE model to reflect the effect of bitcoin market sentiment. The experiment shows that the average accuracy of daily bitcoin price prediction is 0.82 for 362 consecutive days in 2017. The results demonstrate the PDE model is capable of predicting bitcoin price. The paper is the first attempt to apply a PDE model to the bitcoin transaction network for predicting bitcoin price.