Using Sentiment and Technical Analysis to Predict Bitcoin with Machine Learning

TL;DR

This paper introduces a novel machine learning approach that combines market sentiment indices and technical analysis indicators to improve Bitcoin price prediction, showing promising results over simple investment strategies.

Contribution

It is the first to integrate sentiment metrics with technical analysis indicators for Bitcoin prediction using machine learning, highlighting the importance of combined indicators.

Findings

Outperforms Buy & Hold baseline in investment returns

Shows the effectiveness of sentiment and technical indicators combination

Provides preliminary evidence for the importance of sentiment in crypto forecasting

Abstract

Cryptocurrencies have gained significant attention in recent years due to their decentralized nature and potential for financial innovation. Thus, the ability to accurately predict its price has become a subject of great interest for investors, traders, and researchers. Some works in the literature show how Bitcoin's market sentiment correlates with its price fluctuations in the market. However, papers that consider the sentiment of the market associated with financial Technical Analysis indicators in order to predict Bitcoin's price are still scarce. In this paper, we present a novel approach for predicting Bitcoin price movements by combining the Fear & Greedy Index, a measure of market sentiment, Technical Analysis indicators, and the potential of Machine Learning algorithms. This work represents a preliminary study on the importance of sentiment metrics in cryptocurrency forecasting. Our initial experiments demonstrate promising results considering investment returns, surpassing the Buy & Hold baseline, and offering valuable insights about the combination of indicators of sentiment and market in a cryptocurrency prediction model.