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Abstract— Bitcoin is a type of cryptocurrency that allows cross-border payments, for large and small items,
implemented decentralized digital currency method. The with little or no transactional costs (Nakamoto, 2009).
transaction is monitored and validated by peer-to peer The bitcoin transactional system is often described as an
system using hash programming. These transactions are anonymous system, although it might be more accurate to
verified by network nodes through the use of describe the system as one in which users can invoke
cryptography and recorded in a public distributed ledger privacy. The ledger of account for all Bitcoin transactions
called a blockchain. The objective of this study is to is public and distributed (Simser, 2015). According to
forecast the Bitcoin exchange rate using weighted moving Christopher (2014) Bitcoin operates via a peer-to-peer
average method. Data selected in this study are selected (P2P) network. P2P networks are created when multiple
hourly from 14th December 2017 until 18th December individuals run the necessary software on their individual
2017. The forecasting method is using weighted moving computers and connect to each other.
average. Then, the validity of the forecasting model is Bitcoin is different with traditional method of payment.
validated using mean absolute percentage error (MAPE) Abu Bakar et al. (2017) highlight several main differences
calculation. Results indicated mean absolute percentage between traditional digital currency and cryptocurrency
error is 0.72%. Therefore, the moving average method is transaction process. In definition, current fiat money is
considered as reliable forecasting method for Bitcoin money in any form when in actual use or circulation as a
exchange rate. The finding of this study will help medium of exchange, especially circulating banknotes
investors to make best decision regarding suitable and coins. This type of money is government-issued
portfolio for their investment. currencies. Comparing to cryptocurrency, Bitcoin is
Keywords— Bitcoin, Financial technology, Forecasting digital currency in which encryption techniques are used
method, Statistical approach, Cryptocurrency to regulate the generation of units of currency.
Even there are many advantage using a Bitcoin
I. INTRODUCTION cryptocurrency but the problem arises is either Bitcoin
Bitcoin is a type of cryptocurrency that implemented cryptocurrency can be a good medium of exchange due to
decentralized digital currency method. The transaction is high volatility and risk. Therefore, this study tries to
monitored and validated by peer-to peer system using fulfill this gap by forecasting Bitcoin exchange rate using
hash programming. These transactions are verified by weighted moving average.
network nodes through the use of cryptography and
recorded in a public distributed ledger called a II. LITERATURE REVIEW
blockchain. Over the last few years, a wide range of digital currencies,
Bitcoin become popular when the price for 1 Bitcoin was such as BitCoin, LiteCoin, PeerCoin, AuroraCoin,
aggressively increased. This condition was attracted more DogeCoin and Ripple, have emerged (Ciaian et al., 2014).
investors to invest in Bitcoin cryptocurrency transaction. The most popular is Bitcoin. It has been getting a lot of
Bitcoin was developed by Satoshi Nakamoto. Bitcoin is a media attention, and its total market value has reached 20
crypto-currency based on open-source software and billion USD in March 2017 (Chiu and Koeppl, 2017). The
protocols that operates in peer-to-peer networks as a price of the Bitcoin cryptocurrency has risen from
private irreversible payment mechanism. The protocol December 2016, moving to USD 13282.29 in early
December 2017. This value show the Bitcoin
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International Journal of Advanced Engineering Research and Science (IJAERS) [Vol-5, Issue-1, Jan- 2018]
https://dx.doi.org/10.22161/ijaers.5.1.11 ISSN: 2349-6495(P) | 2456-1908(O)
cryptocurrency was attracted more investors to involved Next, x1 x2 ...xn denotes as ordered random sample of
in this transaction. As investors, the main objective of the size n from a normal distribution data with mean 0 and
investment is to get high profit. Therefore, Bitcoin variance 1. Therefore, below equations were derived.
cryptocurrency are looking as a good platform for
E x i mi , where i 1, 2,..., n ...…………….. (1)
investment (Abu Bakar and Rosbi, 2017).
Bitcoin is a type of digital coins (cryptocurrency) which is cov xi , x j vi j , where i, j 1, 2,..., n ...…….. (2)
not issued by any government, bank or organization.
Then, consider y ' y1 ,..., yn represents as a vector of
However, bitcoin is relying on cryptographic protocols
and a distributed network of users to perform mining, ordered random observation. The objective of this test is
storing, and transferring activities. Bitcoin currency is a to derive a test for the hypothesis that this is a sample
monetary value that is accepted for payment purposes by from a normal distribution data with unknown value of
persons other than the issuer, with the unit of account mean and unknown variance σ2.
matching that of the physical currency (Ram, et al., 2016; Clearly, if yi is a normal sample, then yi may be
Bal, 2013).
expressed as:
Wijk, (2017) stated the main users of the Bitcoin are
yi xi , where i 1, 2,..., n …………….. (3)
technologically interested geeks who want to use the
newest innovations, anarchists who have lost trust in the Utilizing the generalized least-squares theorem that the
governments and the banking systems, and speculative best linear unbiased estimates of and are those
risk-seekers looking for a new gamble. However, this is quantities that minimize the quadratic form:
quickly changing due to the increase in the value of the y 1 m 'V 1 y 1 m ………………. (4)
Bitcoin and the attention that it gets in the news.
Abu Bakar and Rosbi (2017) show a statistical analysis, where, 1' 1,1,...,1 .
for Bitcoin return is 0.006 (mean) and the deviation is Next, the estimates of and are described as
0.04458. The standard error indicates the volatility for below equation.
Bitcoin is 4.458 %. This value is considered as high value m 'V 1 m1' 1m 'V 1 y
of volatility. High value of volatility indicates the ˆ ……………………... (5)
1'V 11m 'V 1m 1'V 1m
2
investment in Bitcoin is categorical as high risk
investment. The important of this study is to assist 1'V 1 1m ' m1' V 1 y
investors to develop better investment portfolio in ˆ ……………...…...…. (6)
1'V 11m 'V 1m 1'V 1m
2
i 1
III. RESEARCH METHODOLOGY denote the usual symmetric unbiased estimate of
This section describes normality test, weightage moving
n 1 2 .
average method and mean absolute percentage error
Therefore, the W test statistic for normality is defined by
calculation.
R 4ˆ 2 b 2 a ' y
2
3.1 Shapiro Wilk Normality test
W 2 2 2
This section describes the mathematical procedure to C S S S2
perform normality test (Shapiro and Wilk, 1965). 2
n
Consider m ' m1 , m2 ,..., mn as the vector of expected ai yi
W n i 1 ………………………………….. (10)
values of standard normal statistics. Then, V vi is
yi y
2
j
where,
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International Journal of Advanced Engineering Research and Science (IJAERS) [Vol-5, Issue-1, Jan- 2018]
https://dx.doi.org/10.22161/ijaers.5.1.11 ISSN: 2349-6495(P) | 2456-1908(O)
R2 m 'V 1m n
Actuali Forecast i
C m 'V V m
2 1 1
i 1
100
MAPE (%) .…… (12)
Actuali
m 'V 1 n
a ' a1 ,..., an 1 The MAPE has advantage that easily interpreted in
m 'V V 1m 2
1
term of percentage to the actual values.
R 2ˆ
b
C IV. RESULT AND DISCUSSION
Thus, b is, up to the normalizing constant C, the best This study performed analysis of normality for data
linear unbiased estimate of the slope of a linear regression distribution and performed weighted moving average as
of the ordered observations, yi , on the expected values, prediction method.
4.1 Dynamic behavior of Bitcoin exchange rate
mi , of the standard normal order statistics. The constant This study analyzed hourly data of Bitcoin exchange rate
C is so defined that the linear coefficients are normalized. starting from 14th December 2017 until 18th December
It may be noted that if one is indeed sampling from a 2017. The starting value for Bitcoin exchange rate on 14th
normal population then the numerator, b 2 , and December 2017, 01:00 is USD 16600 for each Bitcoin.
2
denominator, S , of W are both, up to a constant , The minimum value of Bitcoin exchange rate is USD
estimating the same quantity, namely σ2. 16169 on 14th December 2017, 03:00. Meanwhile, the
3.2 Weighted moving average maximum value of Bitcoin exchange rate is USD
This section describes the forecasting method using 19704.80 on 17th December 2017, 12:00. The ending
weighted moving average. Weighted moving average is a value of Bitcoin exchange rate on 18th December 2017,
forecasting method that more responsive to changes 24:00 is USD 18960.52.
because more recent periods may be more heavily 20000
Bitcoin exchange rate
Bitcoin exchange rate (USD / Bitcoin)
weighted. 19500
A weighted moving average may be expressed 19000
mathematically as:
18500
Weighted moving average
Weight for period n Exchange rate in period n 18000
Weights 17500
equation. 16500
EXFt EX t 1 EX t 2 EX t 3 ……………….... (11) 16000
0 24 48 72 96 120
where, 14 Dec. 15 Dec. 16 Dec. 17 Dec. 18 Dec.
EXFt is forecast value of exchange rate at period t, 2017 2017 2017 2017 2017
Observation period (hours)
EX t 1 is actual value of exchange rate at period t-1, Fig. 1: Dynamic behavior of Bitcoin exchange rate
is weightage for EX t 1 , we set as 0.8,
EX t 2 is actual value of exchange rate at period t-2, 4.2 Normality test for first difference of Bitcoin
exchange rate
is weightage for EX t 2 , we set as 0.1,
Then, this study calculated the changes of Bitcoin
EX t 3 is actual value of exchange rate at period t-3, and exchange rate. The changes are calculated by difference
is weightage for EX t 3 , we set as 0.1. between current observations with previous observation
3.3 Mean absolute percentage error calculation of Bitcoin exchange rate. The calculation is represented
One of the indicators for detecting a reliable and robust by Equation (13).
model of forecasting is using mean absolute percentage EXCt EXCt EXCt 1 …………..…………….… (13)
error (MAPE). The MAPE is computed as the average of Where:
the absolute difference between the forecasted and actual EXCt is first difference of exchange rate;
values, expressed as a percentage of the actual values. EXCt is Bitcoin exchange rate on period t;
That is, if we have forecasted and actual values for n
EXCt 1 is Bitcoin exchange rate on period t-1.
periods, the MAPE is calculated as:
www.ijaers.com Page | 66
International Journal of Advanced Engineering Research and Science (IJAERS) [Vol-5, Issue-1, Jan- 2018]
https://dx.doi.org/10.22161/ijaers.5.1.11 ISSN: 2349-6495(P) | 2456-1908(O)
Figure 2 shows changes of Bitcoin exchange rate. The 4.3 Normality transformation for data
mean of the data is 19.83. The standard deviation is This section describes the normality transformation for
179.25.The maximum value of changes is USD 427.17. first difference of exchange rate data. This study started
There is one outliers exists which is 97th observation. The with detecting outliers. Therefore, the 97th observation
value of outliers is -912.15. This finding is validated with (18th December 2017, 01:00, with value -912.15) is
normal percentiles plot in Figure 3. A normal percentile considered as outliers. This study eliminated this data
plot shows one outliers exists in Figure 3. This value is point to evaluate the effect to the normality
considered as outliers because that observation is deviated characteristics.
far from normal reference line. This study validated the normality characteristics using
Then, this study performed numerical normality test using graphical method and numerical method. Graphical
Shapiro-Wilk method. The probability value is 0.000 less method is implemented using histogram and normal
than 0.05. Therefore, the distribution of data follows non- probability plot. Figure 4 shows the histogram for first
normal distribution. difference of Bitcoin exchange rate. The distribution of
data is near to normal distribution line (red line).
Changes of Bitcoin exchange rate (USD / bitcoin)
600
Bitcoin Therefore, distribution of data follows normal
400
distribution.
200 In addition, this study performed the second graphical
0
method namely normal probability plot. Figure 5 shows
0 24 48 72 96 120 the normal percentiles for first difference of Bitcoin
-200
exchange rate. Result shows all the data points are
-400 distributed closely to normal reference line (red line).
-600
Therefore, the distribution of first difference of Bitcoin
exchange rate follows normal distribution.
-800
Then, we performed numerical testing to validate the
97th
-1000 normality characteristics of data distribution. Table 2
14 Dec. 15 Dec. 16 Dec. 17 Dec. 18 Dec
2017 2017 2017 2017 2017 shows the Shapiro-Wilk normality test for first difference
Observation period (hours) of Bitcoin exchange rate. The null hypothesis of this test
Fig. 2: Changes of Bitcoin exchange rate is that the sample data is normally distributed. Table 2
shows the probability value is 0.795. This value is larger
Normal probability for first difference of exchange rate than chosen alpha (0.05).Therefore, this study fail to
mean = 19.83336 standard deviation = 179.25501
reject null hypotheses. The distribution of data is
Percentiles normally distributed.
Reference Line
99.5
30 Bitcoin
95
Normal Percentiles
25
70
40
20
Frequency
10
15
97th
1
10
0.01
-1000 -500 0 500
5
First difference of Bitcoin exchange rate
Fig. 3: Normal Percentiles 0
-400 -200 0 200 400
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International Journal of Advanced Engineering Research and Science (IJAERS) [Vol-5, Issue-1, Jan- 2018]
https://dx.doi.org/10.22161/ijaers.5.1.11 ISSN: 2349-6495(P) | 2456-1908(O)
Normal Probability Plot for first difference of exchange rate moving average. Figure 7 shows one data (97th
mean = 27.73153 standard deviation = 157.86136
observation, 18th December 2017, 01:00) that shows large
Percentiles residual. This data point is the outliers in the data set.
Reference Line
99.5 Therefore, it contributes to large residual between actual
95 value and forecast value.
Normal Percentiles
average -800
97th
This section describes the result of forecasting using -1000
between actual data and forecast data using weighted 2017 2017 2017 2017 2017
Observation period (hour)
moving average. Forecast data is represented by red line.
The maximum value of forecast data is USD 19686.26 for Fig. 7: Residual plot for forecasting method using
each Bitcoin on 17th December 2017, 13:00. Meanwhile, weighted moving average
the minimum value of forecast data is USD 16237.75 for
6
each Bitcoin on 14th December 2017, 04:00. Bitcoin
20000 97th
Absolute Percentage Error (%)
5
Actual data
19500 Forecast data
Exchange rate ( USD / bitcoin )
19000
3
18500
2
18000
1
17500
0
17000
0 24 48 72 96 120
14 Dec 15 Dec 16 Dec 17 Dec 18 Dec
16500 2017 2017 2017 2017 2017
Observation period (hour)
16000
0 24 48 72 96 120 Fig. 8: Absolute percentage error analysis
14 Dec 15 Dec 16 Dec 17 Dec 18 Dec
2017 2017 2017 2017 2017
Observation period (hour)
V. CONCLUSION
Fig. 6: Forecasting using weighted moving average The objective of this study is to develop forecasting
methos for high frequency data for Bitcoin exchange rate
Then, this study developed residual plot to evaluate the data. This study proposed weighted moving average to
reliability of the forecasting model. Figure 7 shows the forecast the dynamic movement of Bitcoin exchange rate.
residual plot for forecasting method using weighted
www.ijaers.com Page | 68
International Journal of Advanced Engineering Research and Science (IJAERS) [Vol-5, Issue-1, Jan- 2018]
https://dx.doi.org/10.22161/ijaers.5.1.11 ISSN: 2349-6495(P) | 2456-1908(O)
The main findings concluded from this study are: Scientific Research and Engineering, Vol.3 (9), pp.
(a) This study analyzed hourly data of Bitcoin 80-91.
exchange rate starting from 14th December 2017 [3] Abu Bakar, N., Rosbi, S. and Uzaki, K., (2017)
until 18th December 2017. The starting value for Cryptocurrency Framework Diagnostics from Islamic
Bitcoin exchange rate on 14th December 2017, Finance Perspective: A New Insight of Bitcoin
01:00 is USD 16600 for each Bitcoin. The System Transaction, International Journal of
minimum value of Bitcoin exchange rate is USD Management Science and Business Administration,
16169 on 14th December 2017, 03:00. Vol. 4 (1), pp.19-28.
Meanwhile, the maximum value of Bitcoin [4] Abu Bakar, N. and Rosbi, S., (2017) High Volatility
exchange rate is USD 19704.80 on 17th Detection Method Using Statistical Process Control
December 2017, 12:00. The ending value of for Cryptocurrency Exchange Rate: A Case Study of
Bitcoin exchange rate on 18th December 2017, Bitcoin, The International Journal of Engineering and
24:00 is USD 18960.52. Science, Vol. 6(11), pp. 39-48.
(b) Next, this study performed analysis to first [5] Buchholz, M., Delaney, J. and Warren, J. (2012) Bits
difference of Bitcoin exchange rate. The mean of and Bets Information, Price Volatility, and Demand
the data is 19.83. The standard deviation is for Bitcoin, available at:
179.25.The maximum value of changes is USD http://www.bitcointrading.com/pdf/bitsandbets.pdf
427.17. There is one outliers exists which is 97th [6] Ciaian, P., Rajcaniova, M. and Kancs, D., The
observation. The value of outliers is -912.15. Economics of BitCoin Price Formation,available at:
(c) Then, this study performed numerical normality https://arxiv.org/ftp/arxiv/papers/1405/1405.4498.pdf
test for first difference of Bitcoin exchange rate [7] Chiu, J. and Koeppl, T., (2017) The Economics of
using Shapiro-Wilk method. The probability Cryptocurrencies - Bitcoin and Beyond, available at:
value is 0.000. Therefore, the distribution of data https://www.chapman.edu/research/institutes-and-
follows non-normal distribution. centers/economic-science-institute/_files/ifree-
(d) In addition, this study performed the forecast papers-and-photos/koeppel-april2017.pdf
using weighted moving average. The maximum [8] Nakamoto, S. (2009) "Bitcoin: A peer-to-peer
value of forecast data is USD 19686.26 for each electronic cash system", Retrieved from
Bitcoin on 17th December 2017, 13:00. http://www.bitcoin.org
Meanwhile, the minimum value of forecast data [9] Ram, A., Maroun, W. and Garnett, R., (2016)
is USD 16237.75 for each Bitcoin on 14th Accounting for the Bitcoin: accountability,
December 2017, 04:00. neoliberalism and a correspondence analysis,
(e) Mean value for residual is USD 29.68 for each Meditari Accountancy Research, 24 (1), pp. 2-35.
Bitcoin. The standard deviation for data is USD [10] Shapiro, S.S. and Wilk, M.B. (1965), An Analysis of
179.49 for each Bitcoin. Result indicates the Variance Test for Normality (Complete Samples),
distribution of residual is follows white noise Biometrika, Vol. 52, No.3/4.
pattern. Therefore, the residual analysis shows [11] Simser, J.,(2015), Bitcoin and modern alchemy: in
the moving average model is a reliable code we trust, Journal of Financial Crime, Vol. 22
forecasting method. (2), pp. 156-169.
(f) The mean absolute percentage error is 0.72%. [12] Wijk, D.V. (2013), What can be expected from the
Therefore, the moving average method is BitCoin?, Working Paper No. 345986, Erasmus
considered as reliable forecasting method for Rotterdam Universiteit
Bitcoin exchange rate.
REFERENCES
[1] Abu Bakar, N. and Rosbi, S. (2017), High Volatility
Detection Method Using Statistical Process Control
for Cryptocurrency Exchange Rate: A Case Study of
Bitcoin, The International Journal of Engineering and
Science, Vol. 6(11), pp. 39-48.
[2] Abu Bakar, N. and Rosbi, S. (2017), Robust
Statistical Normality Transformation method with
Outlier Consideration in Bitcoin Exchange Rate
Analysis, International Journal of Advances in
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