Stability Analysis of Bitcoin using Recurrence Quantification Analysis

Abstract

Cryptocurrencies are new kinds of electronic currencies based on communication technologies. These currencies have attracted the attention of investors. However, cryptocurrencies are very volatile and unpredictable. For investors, it is very difficult to make investment decisions in cryptocurrency market. Therefore, revealing changes in the dynamics of cryptocurrencies are valuable for investors. Bitcoin is the most popular and representative cryptocurrency in cryptocurrency market. In this study how dynamical properties of Bitcoin changed through time is analyzed with recurrence quantification analysis (RQA). RQA is a pattern recognition-based time series analysis method that reveals dynamics of the time series by calculating some metrics called RQA measures. This method has been successfully applied to nonlinear, nonstationary, short and chaotic time series and do not assume a statistical model. RQA can reveal important properties of time series data such as determinism, laminarity, stability, randomness, regularity and complexity. By using sliding window RQA we show that in 2021 RQA measures for Bitcoin prices collapse and Bitcoin becomes more unpredictable, more random, more unstable, more irregular and less complex. Therefore, dynamics and stability of the Bitcoin prices significantly changed in 2021.

Investigation of the Relationship Between Chaos Data and €/$ Exchange Rate Index Data with RQA Method

“…Based on this, industries need to switch from coal to natural gas or oil in order to avoid the risk from the carbon emission market, and it is concluded that this behavior will lead to a reduction in carbon emissions. Baki (2022b) examined how the dynamic properties of Bitcoin changed over time using RQA. In the study, it was concluded that Bitcoin became more unpredictable, more random, more unstable, more irregular and less complex in 2021.…”