Time Series Analysis of Bitcoin Prices Using ARIMA and LSTM for Trend Prediction

This study investigates the efficacy of ARIMA and LSTM models in predicting Bitcoin prices, emphasizing the importance of accurate price prediction for trading, risk management, and investment strategies in the volatile cryptocurrency market. The objectives are to analyze Bitcoin prices to identify underlying patterns and trends, compare the predictive performance of ARIMA and LSTM models, and provide insights into their practical applications for Bitcoin price prediction. A comprehensive dataset of Bitcoin prices from January 1, 2011, to December 31, 2023, sourced from CoinMarketCap, was used. Data preprocessing included handling missing values, removing duplicates, achieving stationarity through differencing, and normalizing data using MinMaxScaler. The ARIMA model's best-fitting parameters were identified using ACF and PACF plots, and it was trained with the statsmodels library. The LSTM model involved data preparation through windowing and train-test splitting, constructing a neural network with LSTM layers, and training using TensorFlow/Keras. Evaluation metrics included Mean Absolute Error (MAE) and Root Mean Squared Error (RMSE), with comparisons based on accuracy and computational efficiency. The ARIMA model demonstrated impressive performance with an MAE of 2.308392356829177e-215 and an RMSE of 0.0, indicating a near-perfect fit to the training data. The LSTM model achieved an MAE of 0.00021804577826689423 and an RMSE of 0.00021916977109865863, showing robust performance in handling nonlinear and long-term dependencies. The ARIMA model excelled in computational efficiency with a training time of 2.548070192337036 seconds and a prediction time of 0.0009970664978027344 seconds, while the LSTM model required 378.69622468948364 seconds for training and 0.6859967708587646 seconds for prediction. The results highlight ARIMA's effectiveness in capturing linear trends and its suitability for short-term trading strategies, while LSTM is better for long-term investment strategies due to its ability to model complex patterns. Despite potential overfitting in ARIMA and high computational demands for LSTM, the study suggests exploring hybrid models, incorporating additional data sources, and developing advanced techniques to enhance predictive accuracy in future research.