Bitcoin, cryptocurrency, and online trading

Bitcoin, the first cryptocurrency by date of launch and by market cap (as of December2017) has attracted investors and traders because of its ease of starting trading, ability to stay pseudo-anonymous, and, of course, dramatic growth during its history (see Table 1 and Figure 1 for some statistics). This lures long-term investors; its high volatility also attracts day traders.

However, it's hard predict the value of Bitcoin in the long term, as the value behind Bitcoin is less tangible. The price mostly reflects market perception and is highly dependent on news, regulations, collaboration of governments and banks, technical issues of the platform (such as transactions fee and block size), interest of institutional investors in including Bitcoin into their portfolio, and more:

Nonetheless, from a short-term perspective, Bitcoin price is a by-product of market activity usually happening on a platform, called exchange (Bitstamp, Coinbase, Kraken, and Bitfinex among the most well-known exchanges). Users, after registration and after going through KYC (Know Your Customer) procedures, can trade Bitcoin in it for fiat currencies such as dollars and euros, as well as for other cryptocurrencies, called alt-coins or alternative coins (Ethereum, Litecoin, and Dash are well known):

Table 1 – Bitcoin historical price movement

Exchanges maintain order books—lists of all buy and sell orders, with their quantities and prices—and execute when a match is found between somebody buying and somebody selling. In addition, exchanges also keep and provide statistics about the state of trading, often captured as OCHL and volume for both currencies of the trader pai. For this project, we will be using the BTC/USD cryptocurrency pair.

This data is presented as aggregated by period, from seconds to days, and even months. There are dedicated servers working on collecting Bitcoin data for professional traders and institutions. Although one cannot expect to have all orders data available free, some of it is accessible to the public and can be used.