Initial Coin Offering Prediction Comparison Using Ridge Regression, Artificial Neural Network, Random Forest Regression, and Hybrid ANN-Ridge

• Published in: Mendel (Brno (Czech Republic)) Vol. 29; no. 2; pp. 283 - 294
• Main Authors: Tran, Toai Kim, Senkerik, Roman, Vo, Hahn Thi Xuan, Vo, Huan Minh, Ulrich, Adam, Musil, Marek, Zelinka, Ivan
• Format: Journal Article
• Language: English
• Published: Brno University of Technology 20-12-2023
• Subjects: ICO; Linear regression; Multi-correlation; Neural networks; Prediction; Ridge regression
• ISSN: 1803-3814; 2571-3701
• DOI: 10.13164/mendel.2023.2.283

Can machine learning take a prediction to win an investment in ICO (Initial Coin Offering)? In this research work, our objective is to answer this question. Four popular and lower computational demanding approaches including Ridge regression (RR), Artificial neural network (ANN), Random forest regression (RFR), and a hybrid ANN-Ridge regression are compared in terms of accuracy metrics to predict ICO value after six months. We use a dataset collected from 109 ICOs that were obtained from the cryptocurrency websites after data preprocessing. The dataset consists of 12 fields covering the main factors that affect the value of an ICO. One-hot encoding technique is applied to convert the alphanumeric form into a binary format to perform better predictions; thus, the dataset has been expanded to 128 columns and 109 rows. Input data (variables) and ICO value are non-linear dependent. The Artificial neural network algorithm offers a bio-inspired mathematical model to solve the complex non-linear relationship between input variables and ICO value. The linear regression model has problems with overfitting and multicollinearity that make the ICO prediction inaccurate. On the contrary, the Ridge regression algorithm overcomes the correlation problem that independent variables are highly correlated to the output value when dealing with ICO data. Random forest regression does avoid overfitting by growing a large decision tree to minimize the prediction error. Hybrid ANN-Ridge regression leverages the strengths of both algorithms to improve prediction accuracy. By combining ANN’s ability to capture complex non-linear relationships with the regularization capabilities of Ridge regression, the hybrid can potentially provide better predictive performance compared to using either algorithm individually. After the training process with the cross-validation technique and the parameter fitting process, we obtained several models but selected three of the best in each algorithm based on metrics of RMSE (Root Mean Square Error), R2 (R-squared), and MAE (Mean Absolute Error). The validation results show that the presented Ridge regression approach has an accuracy of at most 99% of the actual value. The Artificial neural network predicts the ICO value with an accuracy of up to 98% of the actual value after six months. Additionally, the Random forest regression and the hybrid ANN-Ridge regression improve the predictive accuracy to 98% actual value.