Question

Question 1:

For the following assume you have a (2 years) time series data with the daily price of one cryptocurrency(or multiple cryptos) for example Bitcoin. Also, you have other variables such as S&P500, VIX, transaction volume, EMWA, and also one (or more if you like) attention factors that could be searches on "bitcoin" on google, number of searches on wikipedia etc. You can add more or remove some of the variables that are mentioned if you think that some shouldn't be used or that other should be included.

Answer a) and b), by explaining what statistical models you would use (for example VECM, ARDL, ARIMA, OSL regression). Also include why, and how you would use them.

A good answer would be similar to the "step by step guide to predict a stock using STATA, Eviews and Matlab".

a) If you plan to predict the price/return and  one (or multiple) cryptocurrency, how would you do it?

b) Explain how one (or multiple) cryptocurrency moves/depends on the variables?

Answer 1

a) If i have to predict the price or return of cryptocurrencies, I would be looking at the past data and the relative performance of those cryptocurrency to stock market of equities.

Cryptocurrencies always find upside run, when there is liquidity into the economy and there is high level of cash flows. Even though cryptocurrencies do not have legal acceptance into many countries, there is still considered as a substitute of the current monetary system because there is no third party intervention into the regulation of cryptocurrencies as these are highly encrypted form of standard currencies which are managed, without a third party intervention.

I would look for past price trends, which would include various kinds of technical analysis tools like moving averages and parabola because the moves in cryptocurrencies are highly wild in nature and if one rides it for the short momentum, he will make majority of the return and if he is caught on the other side he will lose majority of the capital.

b) Cryptocurrencies are interdependent on each others moment because these are highly related to a pack than a single currency, when there is movement in whole cryptocurrency group there would be movement in individual cryptocurrencies, it is not about individual outperformance related to the overall index because there are very few cryptocurrencies, which are genuine in nature and which do have a legal value and which can be really used and incorporated into the the modern and sophisticated world through high acceptability.

I would look for various kinds of moving averages whether it would be daily moving average or weekly moving average or simple moving average or exponential moving average and I will combine it with volume related moment so that I would be getting a higher degree of assurance through taking my trades.