predicting bitcoin prices using bayesian regression techniques

this project aims to implement the algorithm described in the 2014 MIT paper, Bayesian Regression and Bitcoin by Devavrat Shah and Kang Zhang. The paper can be found under references/mit paper

The algorithm first attempts to identify patterns within historical price data using k-means clustering using one set of prices. It then uses the second set of prices to train weights for its predicted price function. This is where the Bayesian regression comes in - at time t, we evaluate three vectors of past prices of different time intervals. We compare these vectors to the known kmeans patterns with their known price change, to find a probabilistic average for the predicted price change at t. The third set of prices is used to evaluate the algorithm.

##How to use it: All the relevant code is in MATLAB. The BTC price data is avaiable as two csvs of okcoin or coinbase data at 5s intervals. The okcoin data also comes with bid volume and ask volume (number of bitcoins bidded/asked at time t). Run algotrading.m in matlab, which will carry out all three steps above and return [bank,error], which is the predicted profit, and the error of the current implementation.

-bayesian.m performs the bayesian regression -train_regressor.m trains the weights w using linear regression and L2 regularization -brtrade.m performs the final evaluation -vecsim.m calculates similarity between two vectors

##What Next? The code in its current state does not seem to be effective at its function. After speaking to one of the authors of the paper, I think I implemented what was described. The main item left would be to selectively choose 20 effective patterns from the 100 k-means clustered patterns - the current implementation goes straight to clustering 20 patterns. It is possible to further tweak several constants, but I am still left at a loss as to how the paper acheived a Sharpe ratio of 4.

##Attribution The train_regressor code was written by MIT 6.S03 staff, and the scraping of historical prices was done by Shaurya Saluja. All other code was written by me (Anvita Pandit). If you find this useful, or want to discuss it further, I can be reached at pandit at mit dot edu If you use this, do attribute me.

The csv files are available at https://bitbucket.org/anvitapandit/btcpredictor (too large for my github)