Deep learning for Bitcoin price direction prediction: models and trading strategies empirically compared

Abstract

This paper applies deep learning models to predict Bitcoin price directions and the subsequent profitability of trading strategies based on these predictions. The study compares the performance of the convolutional neural network–long short-term memory (CNN–LSTM), long- and short-term time-series network, temporal convolutional network, and ARIMA (benchmark) models for predicting Bitcoin prices using on-chain data. Feature-selection methods—i.e., Boruta, genetic algorithm, and light gradient boosting machine—are applied to address the curse of dimensionality that could result from a large feature set. Results indicate that combining Boruta feature selection with the CNN–LSTM model consistently outperforms other combinations, achieving an accuracy of 82.44%. Three trading strategies and three investment positions are examined through backtesting. The long-and-short buy-and-sell investment approach generated an extraordinary annual return of 6654% when informed by higher-accuracy price-direction predictions. This study provides evidence of the potential profitability of predictive models in Bitcoin trading.