Trading on Cryptocurrency Markets: Analyzing the Behavior of Bitcoin Investors

Driven by innovative information technologies, the financial industry is facing a recent disruptive fintech revolution. One emerging technology within this field is cryptocurrency, aiming to change the future means of payment. In this paper, we study Bitcoin exchange trading and examine what factors influence the behavior of different cryptocurrency investor types. To answer this question, market bids are considered in form of investors\u27 offers and orders as a proxy for their trading behavior. First, an unsupervised clustering technique is applied in order to group different types of investors based on similarities in trading behavior. Second, a supervised classification mechanism is used on social media news to measure the sentiment influencing trading decisions. Among other indicators this bullishness is integrated in an autoregressive distributed lag (ARDL) model to identify the factors influencing the trading behavior of investor types. Besides large investors, foreign traders and speculators, cryptocurrency-specific market participants are characterized in the form of miners. With identifying indicators driving investors\u27 actions (i.e., macro-financial fundamentals, technical trading indicators, technological measures and market sentiment), this study contributes to recent research by explaining the trading behavior on cryptocurrency markets and its impact on exchange rates