Predicting the Price of Bitcoin Using Sentiment-Enriched Time Series Forecasting

Abstract

Recently, various methods to predict the future price of financial assets have emerged. One promising approach is to combine the historic price with sentiment scores derived via sentiment analysis techniques. In this article, we focus on predicting the future price of Bitcoin, which is currently the most popular cryptocurrency. More precisely, we propose a hybrid approach, combining time series forecasting and sentiment prediction from microblogs, to predict the intraday price of Bitcoin. Moreover, in addition to standard sentiment analysis methods, we are the first to employ a fine-tuned BERT model for this task. We also introduce a novel weighting scheme in which the weight of the sentiment of each tweet depends on the number of its creator’s followers. For evaluation, we consider periods with strongly varying ranges of Bitcoin prices. This enables us to assess the models w.r.t. robustness and generalization to varied market conditions. Our experiments demonstrate that BERT-based sentiment analysis and the proposed weighting scheme improve upon previous methods. Specifically, our hybrid models that use linear regression as the underlying forecasting algorithm perform best in terms of the mean absolute error (MAE of 2.67) and root mean squared error (RMSE of 3.28). However, more complicated models, particularly long short-term memory networks and temporal convolutional networks, tend to have generalization and overfitting issues, resulting in considerably higher MAE and RMSE scores.

Analysis of approaches and their features to research the dynamics of cryptocurrencies

“…The third group of works devoted to the study of the exchange value of cryptocurrencies uses various variations of time series analysis, in which time has both a direct and an indirect influence. For instance, in the work of Frohmann et al (2023), models of time series analysis were used that took into account sentiments (Sentiment-Enriched Time Series Forecasting -SETS models). This approach is becoming popular and involves combining the study of historical prices with sentiment assessments obtained through sentiment analysis methods.…”

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“…The third group of works devoted to the study of the exchange value of cryptocurrencies uses various variations of time series analysis, in which time has both a direct and an indirect influence. For instance, in the work of Frohmann et al (2023), models of time series analysis were used that took into account sentiments (Sentiment-Enriched Time Series Forecasting -SETS models). This…”

Aspect-Based Sentiment Analysis of Twitter Influencers to Predict the Trend of Cryptocurrencies Based on Hybrid Deep Transfer Learning Models

“…One approach is to combine historical price data with sentiment scores. Twitter, in particular, has become a significant source of news and discussion about cryptocurrencies, making it a valuable resource for sentiment analysis [2].…”