Social signals and algorithmic trading of Bitcoin

The availability of data on digital traces is growing to unprecedented sizes, but inferring actionable knowledge from large-scale data is far from being trivial. This is especially important for computational finance, where digital traces of human behavior offer a great potential to drive trading strategies. We contribute to this by providing a consistent approach that integrates various datasources in the design of algorithmic traders. This allows us to derive insights into the principles behind the profitability of our trading strategies. We illustrate our approach through the analysis of Bitcoin, a cryptocurrency known for its large price fluctuations. In our analysis, we include economic signals of volume and price of exchange for USD, adoption of the Bitcoin technology, and transaction volume of Bitcoin. We add social signals related to information search, word of mouth volume, emotional valence, and opinion polarization as expressed in tweets related to Bitcoin for more than 3 years. Our analysis reveals that increases in opinion polarization and exchange volume precede rising Bitcoin prices, and that emotional valence precedes opinion polarization and rising exchange volumes. We apply these insights to design algorithmic trading strategies for Bitcoin, reaching very high profits in less than a year. We verify this high profitability with robust statistical methods that take into account risk and trading costs, confirming the long-standing hypothesis that trading based social media sentiment has the potential to yield positive returns on investment.Comment: http://rsos.royalsocietypublishing.org/content/2/9/15028

Self-Assembling of Networks in an Agent-Based Model

We propose a model to show the self-assembling of network-like structures between a set of nodes without using preexisting positional information or long-range attraction of the nodes. The model is based on Brownian agents that are capable of producing different local (chemical) information and respond to it in a non-linear manner. They solve two tasks in parallel: (i) the detection of the appropriate nodes, and (ii) the establishment of stable links between them. We present results of computer simulations that demonstrate the emergence of robust network structures and investigate the connectivity of the network by means of both analytical estimations and computer simulations. PACS: 05.65.+b, 89.75.Kd, 84.30.Bv, 87.18.SnComment: 10 pages, 8 figures. A video of the computer simulations can be found at http://www.ais.fhg.de/~frank/network.html. After publication, this paper was also included in: Virtual Journal of Biological Physics Research 4/5 (September 1, 2002) and Virtual Journal of Nanoscale Science & Technology 6/10 (September 2, 2002). For related work, see also http://www.ais.fhg.de/~frank/active.htm

International crop trade networks: The impact of shocks and cascades

Analyzing available FAO data from 176 countries over 21 years, we observe an increase of complexity in the international trade of maize, rice, soy, and wheat. A larger number of countries play a role as producers or intermediaries, either for trade or food processing. In consequence, we find that the trade networks become more prone to failure cascades caused by exogenous shocks. In our model, countries compensate for demand deficits by imposing export restrictions. To capture these, we construct higher-order trade dependency networks for the different crops and years. These networks reveal hidden dependencies between countries and allow to discuss policy implications