Can you say what will be the price of Bitcoin few minutes or few days later? Don’t think that I am joking – I am serious, guys. I assume that you may not be able to say that. But here’s the twist – computer scientists at MIT can predict the price of Bitcoin.
Recently, researchers at MIT’s Computer Science and Artificial Intelligence Laboratory and the Laboratory for Information and Decision Systems have developed a machine-learning algorithm that can predict the price Bitcoin. This machine-learning algorithm has allowed the MIT scientists to nearly double its investment over a period of 50 days.
Earlier this year, researcher Devavrat Shah and a student named Kang Zhang collected the price data from all major Bitcoin exchanges, every second for five months, accumulating more than 200 million data points. Then, using a technique called “Bayesian regression,” they trained an algorithm to automatically identify patterns from the data, which they used to predict prices, and trade accordingly.
Specifically, every two seconds they predicted the average price movement over the following 10 seconds. If the price movement was higher than a certain threshold, they bought a Bitcoin; if it was lower than the opposite threshold, they sold one; and if it was in-between, they did nothing.
Shah said, “We developed this method of latent-source modeling, which hinges on the notion that things only happen in a few different ways. Instead of making subjective assumptions about the shape of patterns, we simply take the historical data and plug it into our predictive model to see what emerges.”
And by following this method, they nearly doubled their investment over a period of 50 days. To be more specific, over 50 days, the team’s 2,872 trades gave them an 89 percent return on investment with a Sharpe ratio (measure of return relative to the amount of risk) of 4.1.
The team has published a paper at the 2014 Allerton Conference on Communication, Control, and Computing.
Do you want to invest your money and make it double within a very short time? Well you better contact Shah as he has said, “I can show you it works. Give me your money and I’d be happy to invest it for you.”