Forecasting Bitcoin Volatility Through on-Chain and Whale-Alert Tweet Analysis Using the Q-Learning Algorithm

Abstract

As the adoption of cryptocurrencies, especially Bitcoin (BTC) continues to rise in today's digital economy, understanding their unpredictable nature becomes increasingly critical. This research paper addresses this need by investigating the volatile nature of the cryptocurrency market, mainly focusing on Bitcoin trend prediction utilizing on-chain data and whale-alert tweets. By employing a Q-learning algorithm, a type of reinforcement learning, we analyze variables such as transaction volume, network activity, and significant Bitcoin transactions highlighted in whale-alert tweets. Our findings indicate that the algorithm effectively predicts Bitcoin trends when integrating on-chain and Twitter data. Consequently, this study offers valuable insights that could potentially guide investors in informed Bitcoin investment decisions, thereby playing a pivotal role in the realm of cryptocurrency risk management.