Wayland Tsai

Mar 6, 2021

3 min read

All The Hype: Bitcoin

I’ve been introduced to the world of blockchain and cryptocurrencies for a year or so, and seeing the recent skyrocketing of crypto prices and along with it, the interest that the world has started to show prompted me to do my analysis on Bitcoin (BTC) prices.

The volatility of BTC prices is what makes this asset that hedges against inflation seem so risky yet charming.

The questions I looked into included:

1. The influence, on the price of Bitcoin, Elon Musk’s tweets mentioning it had

2. How much do prices 12 months apart differ from each other

3. Is there a way we could possibly predict the price or at least the trend of BTC prices

The original data included a lot of NA values, so I had to drop them.

Bitcoin prices from 2011–2020

I wanted to focus on the price movement during the year 2020, since it shows the drop around March when the pandemic hit, following the biggest boom in its prices since its creation by Satoshi Nakamoto in 2008.

Bitcoin prices of 2020

Elon Musk has had his fair share of taking crypto prices “to the moon!” with his timely tweets, but his impact has not always been positive. His tweets of “Bitcoin is my safe word” and “Bitcoin is almost as bs as fiat money” on Dec 20 was followed by a drop in BTC prices, as shown in the graph below. But surprisingly, compared to the impact that his tweets have made so far in the year 2021 (which the dataset does not include), the drop was rather insignificant.

Bitcoin prices surrounding date of Musk’s tweets

A comparison between the price fluctuation of 2019 and 2020 can clearly express just how volatile the price of BTC is. There is no clear relation or correlation between the prices each year. But put together, you clearly see how prices are well above where they were a year ago.

Because of how quickly the price of Bitcoin fluctuates, I decided to try to predict the short term prices of the first few months of 2021, using the data of November and December 2020. The result was an upward trend, due to the fact that prices in November and December trended in the positive direction in general. But the range of yhat_lower and yhat_upper shows just how unpredictable the price could be.

Prediction of BTC prices in early months of 2021

It was also very interesting to see how the daily and weekly data for my prediction fluctuated, since crypto trading, unlike the stock market, is up 24/7 all year round. So, prior to getting these results, I assumed daily and weekly data would be more consistent, and had less fluctuations.

How daily, weekly and overall trend patterns contributed to forecast