Generating Synthetic Bitcoin Transactions and Predicting Market Price Movement via Inverse Reinforcement Learning and Agent-Based Modeling

Authored by Peter Beling, William Scherer, Kamwoo Lee, Sinan Ulkuatam

Date Published: 2018

DOI: 10.18564/jasss.3733

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Pseudocode

Model Code URLs: Model code not found

Abstract

In this paper, we present a novel method to predict Bitcoin price movement utilizing inverse reinforcement learning (IRL) and agent-based modeling (ABM). Our approach consists of predicting the price through reproducing synthetic yet realistic behaviors of rational agents in a simulated market, instead of estimating relationships between the price and price-related factors. IRL provides a systematic way to find the behavioral rules of each agent from Blockchain data by framing the trading behavior estimation as a problem of recovering motivations from observed behavior and generating rules consistent with these motivations. Once the rules are recovered, an agent-based model creates hypothetical interactions between the recovered behavioral rules, discovering equilibrium prices as emergent features through matching the supply and demand of Bitcoin. One distinct aspect of our approach with ABM is that while conventional approaches manually design individual rules, our agents' rules are channeled from IRL. Our experimental results show that the proposed method can predict short-term market price while outlining overall market trend.

Tags

Agent-based modeling Cryptocurrency Bitcoin Inverse reinforcement lerning