Cryptocurrency Analysis Of "Ethereum" and Investment Plan

The first part of the analysis begins by representing the current trend of the Ethereum price (USD) values; from the-year-2015 to 2021. Currently, Ethereum prices are going down, and the media have been indicating that it will crash. Thus, this analysis will focus on if Ethereum is worth investing in as of now.

The second step is to perform a natural log transformation on the closing Ethereum prices. The reason being - there is high variation in the current prices, and the values aren't normally distributed. After transforming the closing values, the dataset was filtered whereby, I have kept all the values before 2021 – 01 – 01 and predicted the values for the upcoming 365 days. This step was necessary to understand how accurately our model predicts future values.

Once the prediction was made, a series of Pearson correlation tests were performed on different sets of predicted values and the actual values. The first 4-months of the predicted year 2021 – 01 – 01 to 2021 – 04 – 01 gave a correlation of 0.79, and linear regression also provided a very small p-value indicating a strong linear relationship. Thus, from these results, we can confirm that the model predicts future values with accuracy.

To support that the model is accurate, a series of error measurement metrics were performed. These metrics are residual normality, ACF and PACF. ACF plot is a bar chart of coefficient of correlation between time series, and PACF is partial autocorrelation of a time series with its own lagged values. There is a complex knowledge behind the ACF and PACF metrics. However, what you need to know is that most lines should fall between the blue dashed lines. The reason being, the line positions indicate model accuracy. In addition, you can see the residuals are normally distributed, and stable which is very good.

Furthermore, about model accuracy, a mean square error plot has been shown of the prediction line, and it indicates that it is not extremely variable but stable - given it is a cryptocurrency. The MSE is generally between 0 and 2 - which is low and what you would like to see.

Finally, given the metrics - I have proceeded to perform the predictions from the current date to the year 2022. It shows that there is a drop (which is happening now) but then moves upwards with slight variation (some more drops) and finally into a trend with sharp increases.

Given that our model predicts 4- 5 months with accuracy, it is the best time to invest in the cryptocurrency now, before the prices become even higher. How many coins to buy is all up to you. However, if you buy one coin, given it follows the trend, you should have a good return rate if and when you sell it in the year 2025. The reason why I say 2025 is that many models have predicted the price of Ethereum to move upwards at a nice rate which is good if you missed your chance on Bitcoin.