Cryptocurrency Valuation: An Explainable AI Approach
59 Pages Posted: 27 Jul 2020 Last revised: 7 Apr 2021
Date Written: July 20, 2020
As in stock and commodity markets, investors and financial analysts are constantly seeking reliable indicators to assess the prices of cryptocurrency assets. However, there are currently no convincing proxies for the fundamentals of cryptocurrency assets. We propose an Explainable AI approach for cryptocurrency valuation with guaranteed consistency in theoretical implications and empirical results. We then illustrate and evaluate the approach using historical data regarding Bitcoin as a case study. Our method outperforms existing approaches in explaining asset valuation and informing investment strategies. Moreover, an automated trading strategy based on our approach was found to outperform the conventional buy-and-hold strategy and market timing strategies based on the moving average rule.
Keywords: Asset Valuation, Machine Learning, Bitcoin, Cryptocurrency, Market Timing, Automated Trading, Explainable AI
JEL Classification: G11, G12, G17, C55
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