ISSUES IN ASSESSMENT OF BITCOIN’S VOLATILITY AND ITS PRICE FORECAST

Abstract

Bitcoin has had a significant impact on the global financial environment since its inception in 2009. Many asset managers, huge investment banks, and hedge funds have identified decentralized cryptocurrency as an asset class. As mainstream acceptance accelerates, investors are becoming more interested in new enterprises like crypto options and futures. Bitcoin is known to be more volatile than regulated equities and commodities in the past. Bitcoin's technological advancement is based on two important components: blockchain and mining. The nodes are responsible for all the transactions done in the block chain and these nodes are usually known as miners. There are three ways you can obtain Bitcoins i) Buying them from Bitcoin-denominated services or goods, ii) Bitcoin trading through standard money on block chain or through Bitcoin dealer and iii) Mining is the mining of the entire chain using a computer program to create the Bitcoin. Another distinguishing factor involves its direct transactions between people. Block chain market has a great influence over the changing price of Bitcoin. Even within one day its price fluctuates several times. Anyone can gain a great profit from this daily volatility of Bitcoin price. If his/her positing is reflecting the current trend, then researchers called it trend trading. If the block chain market is short and in bullish trend there is a clear chance to go long. Hedging strategy is gaining an opposing position from his/her current one which recently open to lower down the risk factor. It can be explained through the example that if someone is holding some bitcoins and now, he/she is worried that there is a chance of drop in their price then at this stage use CFDs for short position opening on Bitcoin. If the market shows him/her a decline in the bitcoin price, there he/she might not be going in complete loss, the profit of short position will compensate the loss of the long position. The fluctuations and volatility in bitcoin's price are assessed by number of ways. Here, I have explained certain drivers, variables, and their impact. I have also defined High Volatility problems inculcation on BTC as a stored value. This is based on an Autoregressive Distributed Lag Model (ARDL) that directly or indirectly cause the volatility in crypto coin. This report uses weekly data from 2010 to 2021 to investigate the factors that impact the values of the most popular five crypto coins: Bitcoin, Litecoin, Ether, Dash, Monero, and Litecoin. Total market values, for example, are a crypto market component, share price, and instability have statistically significant effect on five cryptos in the short and long ranges. The impact sign negates, suggesting that a unit rise in trading variance causes Bitcoins to fall by 0.15 unit across time. These impacts appear to be amplified in the short term, implying cryptos are more sensitive to market volatility. Except for Dash, cryptocurrency demand is significant, but only in the long term. This implies that the production and recognition of cryptocurrency's appeal are time-dependent processes and move slowly inside the marketplace. In Bitcoin, the SP500 index yields a weak type of positive influence development (10 percent threshold) for control variables. The Bitcoin model is the only one that predicts a negative estimation with a statistically significant of about 10%. In the process of converting its long-run level, the Blockchain model looks to be resolving 23.68 percent of its inconsistencies from the previous period. In terms of performance the final LSTM (Long Short-Term Memory) model has an RMSPE (Root Mean Squared Percentage Error) of 0.156677, which is roughly 4.42% better than the best performing variant of the GARCH models found - TARCH (1,2). GARCH is still the most popular volatility forecasting model. With a magnitude accuracy of 94.65% on the average 7-day horizon daily volatility forecasting within the period of 07/26/2020 to 08/24/2021.