Read the Analysis with more images on my website : https://shahzaibal9.wixsite.com/website/post/how-to-jumpstart-your-design-career
The first part of the analysis will start by showing the current trend of the Ethereum price (USD) values plot from the year 2015 to the current year 2021. Currently, Ethereum prices are going down and much 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 in the analysis is performing a natural log transformation on the closing Ethereum prices. The reason behind this is because there is high variation in the current prices and the values are not normally distributed thus why the transformation is necessary. 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 next 365 days. This step was done to understand how accurately our model predicts future values.
Once the prediction was done a series of Pearson correlation test were performed of different periods of the predicted values and the actual values. The first 4 months of the predicted year which is 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 good accuracy.
To support that the model is accurate a series of error measurement metrics were performed. The residual normality was tested, and the ACF and PACF metrics were used. 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 huge science behind it, but what you need to know is that most lines should fall between the blue dashed lines and it is indicative of a good model as it points to stability in the series. As you can see the residuals are normally distributed and stable which is good.
Furthermore, with regards to model accuracy, a mean square error plot has been shown of the prediction line and it indicates that it is not extremely variable but quite stable given it is a cryptocurrency. The MSE is generally between 0 and 2 which is what you would like to see.
Finally, given the metrics, I have proceeded to do 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 at least 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. But if you buy one coin given it follows the trend you should have a very good return rate if and when you sell it in the year 2025. The reason why I say 2025 is many models including this one has predicted the price of Ethereum to be very high which is good if you missed your chance on Bitcoin.