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Complex system and PS-LSTM prediction of cryptocurrencies, stocks, bonds, exchange rates and commodities

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  • Wang, Yunxiang
  • Ghazali, Mohd Fahmi
  • Ab Razak, Ruzanna
  • Zaidi, Mohd Azlan Shah

Abstract

This study applies Phase Space Reconstruction and Phase Space LSTM to analyze Bitcoin’s interactions with Gold, S&P 500, U.S. Bonds, EUR/USD, and Crude Oil, revealing hidden dependencies and chaotic structures in financial markets. Study implement a multi-method validation framework combining the Rosenstein algorithm for Lyapunov exponent estimation, 0−1 test for chaos and BDS test to provide robust evidence for deterministic chaos. Results indicate that most assets exhibit deterministic chaos, with price evolution highly sensitive to liquidity conditions and macroeconomic forces. Phase space analysis conducted in optimal four-dimensional embeddings uncovers stronger predictive linkages between Bitcoin and U.S. Bonds, reinforcing its growing dependence on global financial conditions. The application of PS-LSTM significantly enhances forecasting accuracy, demonstrated through rigorous validation including statistical significance testing and economic significance evaluation using risk-adjusted performance metrics. These findings suggest that cryptocurrencies are not isolated assets but deeply entangled with systemic financial fluctuations, necessitating a reassessment of market stability and risk propagation through the lens of statistical mechanics and econophysics.

Suggested Citation

  • Wang, Yunxiang & Ghazali, Mohd Fahmi & Ab Razak, Ruzanna & Zaidi, Mohd Azlan Shah, 2025. "Complex system and PS-LSTM prediction of cryptocurrencies, stocks, bonds, exchange rates and commodities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 679(C).
    • Handle: RePEc:eee:phsmap:v:679:y:2025:i:c:s0378437125006284
    DOI: 10.1016/j.physa.2025.130976
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