Market expectations and the holding behaviors of bitcoin whales, dolphins, and minnows

There is a diverse range of crypto investors with varying degrees of bitcoin holdings and expectations. Among these investors so-called 'whales' feature prominently in the financial press, especially during times of market uncertainty. This study seeks to delineate the investment behaviors of whales as well as medium- ('dolphins') and smaller-sized ('minnows') bitcoin investors. To do so, we look at the holdings of bitcoin addresses and classify them accordingly based on their size. Thereafter, we explore the unifying question of how whales, dolphins and minnows, respectively, behave in the context of extreme market expectations. Contrary to public perception the results from a quantile connectedness model show that ‘whales’ are net receivers of shocks while ‘minnows’ and ‘dolphins’ are net transmitter of shocks. Further analysis examining shifts in hedging ratios with respect to gold indicates that ‘minnows’ and ‘dolphins’ are influenced by hedging expectations with ‘whales’ less so. Our findings provide additional insights into the Bitcoin ecosystem, namely, that small investors transmit a majority of shocks in Bitcoin markets while also being relatively more influenced by Bitcoin’s price risk.