Segmenting Bitcoin Transactions for Price Movement Prediction

Yuxin Zhang, Rajiv Garg, Linda L. Golden, Patrick L. Brockett () and Ajit Sharma
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Yuxin Zhang: Technology, Information Systems and Analytics, Mike Ilitch School of Business, Wayne State University, Detroit, MI 48201, USA
Rajiv Garg: Information Systems and Operations Management, Goizueta Business School, Emory University, Atlanta, GA 30322, USA
Linda L. Golden: Department of Marketing, McCombs School of Business, The University of Texas at Austin, Austin, TX 78712, USA
Patrick L. Brockett: Department of Information, Risk and Operations Management, McCombs School of Business, The University of Texas at Austin, Austin, TX 78712, USA
Ajit Sharma: Technology, Information Systems and Analytics, Mike Ilitch School of Business, Wayne State University, Detroit, MI 48201, USA

JRFM, 2024, vol. 17, issue 3, 1-17

Abstract: Cryptocurrencies like Bitcoin have received substantial attention from financial exchanges. Unfortunately, arbitrage-based financial market price prediction models are ineffective for cryptocurrencies. In this paper, we utilize standard machine learning models and publicly available transaction data in blocks to predict the direction of Bitcoin price movement. We illustrate our methodology using data we merged from the Bitcoin blockchain and various online sources. This gave us the Bitcoin transaction history (block IDs, block timestamps, transaction IDs, senders’ addresses, receivers’ addresses, transaction amounts), as well as the market exchange price, for the period from 13 September 2011 to 5 May 2017. We show that segmenting publicly available transactions based on investor typology helps achieve higher prediction accuracy compared to the existing Bitcoin price movement prediction models in the literature. This transaction segmentation highlights the role of investor types in impacting financial markets. Managerially, the segmentation of financial transactions helps us understand the role of financial and cryptocurrency market participants in asset price movements. These findings provide further implications for risk management, financial regulation, and investment strategies in this new era of digital currencies.

Keywords: Bitcoin price direction prediction; blockchain transactions; financial transaction distribution; financial market segmentation; cryptocurrency transactions (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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