Bitcoin vs. Gold: Who is the Better Choice for Trading?

Can Li, Zixin Jiang, Yinuo Liu, Yu Dang, Yuhan Wang, Rui Yu


Venture capital led by Bitcoin and gold has become increasingly popular in the past several years, so the research of cryptocurrencies (such as Bitcoin) becomes deeper and deeper. Many researchers have studied the collaborative investment of bitcoin and gold, which is an expective portfolio. In this paper, the authors constructed a systematic model, achieving the combination among prediction, making strategies, solving profits, and evaluation. All the study in this paper is based on the given data and constructed model with accurate references.

In this paper, the authors selected the long short-term memory model (LSTM) as the basis, then designed two models called the gold price prediction model (GPPM) and the Bitcoin price prediction model (BPPM) to estimate the price of both gold and Bitcoin, standing as a trader, not a “god economist”. The error analysis shows a good performance of GPPM and BPPM, and it gives the authors confidence to make strategies and calculate final profits (investment worth).

Unambiguously, the final goal of this question is to maximize the total assets (profits), so the author set up a single objective optimization model (SOOM) called the trading strategy model (TSM). The total constraint conditions are divided into six directions, including the basic trading conditions, the evaluation of financial risk, and the difference between gold and Bitcoin. Additionally, the costumers with different trading risk tolerance will acquire different assets finally, which indicates that the prudent policy generally can lead to a better result. After calculation, the asset on 2021/9/10 is about 1.59×108 USD, a considerable number.

The evaluation of TSM has two parts, one is the disturbance test. This test randomly sets that several days’ trading does not occur, then has a comparison between the original model prices and the prices after disturbance. The result proves that the strategy predicted by TSM is the best strategy. The result of the sensitivity test in section 4 finds the polynomial relationship between the assets and the transaction costs. Under current conditions, the final assets will decrease by 4.2% if the transaction costs of gold increase by 1%, and will increase by 2.1% if the transaction costs of bitcoin increase by 1%.

Finally, the authors wrote a memorandum for different customers & traders. We sincerely hope the memorandum can help them in the near future.

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