Psychological dimension of adaptive trading in cryptocurrency markets

TL;DR

This paper extends an agent-based model of adaptive trading to include heterogeneous psychological traits among traders, revealing diverse market dynamics and suggesting a negative correlation model for Bitcoin price variations.

Contribution

It introduces heterogeneity in psychological parameters into the ASPP model, demonstrating its impact on market dynamics and applying it to Bitcoin.

Findings

Heterogeneous ASPP exhibits diverse dynamics based on psychological correlation.

Negative psychological correlation models Bitcoin price variations.

Model captures qualitative differences in market behavior.

Abstract

In this paper we extend the analysis of an agent-based model for adaptive trading, called asynchronous stochastic price pump (ASPP) introduced by Perepelitsa and Timofeyev (2019), to the model with heterogeneous distribution of psychological parameters of speculative optimism and pessimism across the population of traders. We show that the new model has a range of qualitatively different dynamics when the correlation between those factors ranges from low negative to large positive values. A statistical parameter estimation suggests a heterogeneous ASPP with negative correlation as a model of price variations of Bitcoin.