Cryptocurrency Valuation: An Explainable AI Approach

59 Pages Posted: 27 Jul 2020 Last revised: 7 Apr 2021

See all articles by Yulin Liu

Yulin Liu

Bochsler Finance & AssociƩs; Huazhong University of Science and Technology

Luyao Zhang

Duke Kunshan University

Date Written: July 20, 2020

Abstract

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

Suggested Citation

Liu, Yulin and Zhang, Luyao, Cryptocurrency Valuation: An Explainable AI Approach (July 20, 2020). Available at SSRN: https://ssrn.com/abstract=3657986 or http://dx.doi.org/10.2139/ssrn.3657986

Yulin Liu

Bochsler Finance & AssociƩs ( email )

Gotthardstrasse 26
Zug, 6300
Switzerland

Huazhong University of Science and Technology ( email )

Hongshan District Luoyu Road 1037
School of Economics
Wuhan, Hubei 430074
China

HOME PAGE: http://sites.google.com/view/tokenomics/home

Luyao Zhang (Contact Author)

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, Jiangsu 215316
China

HOME PAGE: http://scholars.duke.edu/person/luyao.zhang

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