Analysis of the cryptocurrency market using different prototype-based clustering techniques

Luis Lorenzo () and Javier Arroyo
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Luis Lorenzo: Universidad Complutense de Madrid Facultad de Estudios Estadisticos Madrid
Javier Arroyo: Universidad Complutense de Madrid Facultad de Estudios Estadisticos Madrid

Financial Innovation, 2022, vol. 8, issue 1, 1-46

Abstract: Abstract Since the emergence of Bitcoin, cryptocurrencies have grown significantly, not only in terms of capitalization but also in number. Consequently, the cryptocurrency market can be a conducive arena for investors, as it offers many opportunities. However, it is difficult to understand. This study aims to describe, summarize, and segment the main trends of the entire cryptocurrency market in 2018, using data analysis tools. Accordingly, we propose a new clustering-based methodology that provides complementary views of the financial behavior of cryptocurrencies, and one that looks for associations between the clustering results, and other factors that are not involved in clustering. Particularly, the methodology involves applying three different partitional clustering algorithms, where each of them use a different representation for cryptocurrencies, namely, yearly mean, and standard deviation of the returns, distribution of returns that have not been applied to financial markets previously, and the time series of returns. Because each representation provides a different outlook of the market, we also examine the integration of the three clustering results, to obtain a fine-grained analysis of the main trends of the market. In conclusion, we analyze the association of the clustering results with other descriptive features of cryptocurrencies, including the age, technological attributes, and financial ratios derived from them. This will help to enhance the profiling of the clusters with additional descriptive insights, and to find associations with other variables. Consequently, this study describes the whole market based on graphical information, and a scalable methodology that can be reproduced by investors who want to understand the main trends in the market quickly, and those that look for cryptocurrencies with different financial performance.In our analysis of the 2018 and 2019 for extended period, we found that the market can be typically segmented in few clusters (five or less), and even considering the intersections, the 6 more populations account for 75% of the market. Regarding the associations between the clusters and descriptive features, we find associations between some clusters with volume, market capitalization, and some financial ratios, which could be explored in future research.

Keywords: Fintech; Unsupervised machine learning; Cryptocurrency; Electronic market; Clustering; Investment portfolios (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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DOI: 10.1186/s40854-021-00310-9

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