Causal Modelling of Cryptocurrency Price Movements Using Discretisation-Aware Bayesian Networks

Paper: arXiv 2303.16148

Authors: Rasoul Amirzadeh, Asef Nazari, Dhananjay Thiruvady, Mong Shan Ee

Abstract

This study identifies the key factors influencing the price movements of major cryptocurrencies, Bitcoin, Binance Coin, Ethereum, Litecoin, Ripple, and Tether, using Bayesian networks (BNs). This study addresses two key challenges: modelling price movements in highly volatile cryptocurrency markets and enhancing predictive performance through discretisation-aware Bayesian Networks. It analyses both macro-financial indicators (gold, oil, MSCI, S and P 500, USDX) and social media signals (tweet volume) as potential price drivers. Moreover, since discretisation is a critical step in the effectiveness of BNs, we implement a structured procedure to build 54 BNs models by combining three discretisation methods (equal interval, equal quantile, and k-means) with several bin counts. These models are evaluated using four metrics, including balanced accuracy, F1 score, area under the ROC curve and a composite score. Results show that equal interval with two bins consistently yields the best predictive performance. We also provide deeper insights into each network’s structure through inference, sensitivity, and influence strength analyses. These analyses reveal distinct price-driving patterns for each cryptocurrency, underscore the importance of coin-specific analysis, and demonstrate the value of BNs for interpretable causal modelling in volatile cryptocurrency markets.

Complexity vs Empirical Score

• Math Complexity: 4.5/10
• Empirical Rigor: 6.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper presents a comprehensive empirical systematic search across 54 discretisation configurations for Bayesian Networks applied to crypto price drivers. While mathematically straightforward (focusing on applied probabilistic graphical models rather than new theoretical proofs), the empirical methodology and interpretability analyses (sensitivity and influence strength) are clear and well-structured.

Research Flowchart

  flowchart TD
    A[Goal: Identify & Causal Model Crypto Price Drivers] --> B[Input Data: Macro-Financial Indicators & Social Media Signals]
    B --> C[Construct 54 Bayesian Network Models]
    C --> D[Apply 3 Discretisation Methods: Equal Interval, Equal Quantile, K-Means]
    D --> E[Evaluate Models via Balanced Accuracy, F1, AUC & Composite Score]
    E --> F[Network Structural Analysis: Inference, Sensitivity & Influence]
    F --> G[Outcome: Equal Interval 2 Bins Best; Reveals Coin-Specific Causal Drivers]