Blog And Thoughts By Bob Pattni, Crypto-Guide
What is a Bitcoin Whale? A whale, in Crypto terms, is a big money Bitcoin player who can manipulate the Crypto market by selling their holdings in large – sometimes staggeringly so – numbers.
Last year, someone moved almost 25,000 Bitcoin (worth about $159 million in US Dollars at the time), to one of the main Cryptocurrency online exchanges. The news soon rippled through online forums, with Bitcoin traders arguing amongst themselves about whether it meant the owner was about to sell the digital currency and whether they should follow suit. This uncertainty caused massive price fluctuations in the market – and it wasn’t the first time.
Bitcoin whales are fast becoming the main cause of concern for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the Cryptocurrency is consistently high and continuing to gain recognition in the public consciousness.
About 40 percent of Bitcoin is held by perhaps 1,600 users, with most online forums estimating these users know each other and are groups who collaborated to invest in Bitcoin in the very early days of the currency, and in some cases right from the very inception of this new form of money. It’s considered highly likely that these whales actually co-ordinate their moves – or preview them to a select few – and they can also therefore potentially band together to tank or prop up the market as they choose to dictate.
Regulators have not yet caught up with Cryptocurrency trading, so many of the rules are still murky or in point of fact non-existent. This ‘grey area’ allows the Bitcoin whales to dictate and control the market to their own ends – which is, obviously, to turn themselves the maximum amount of profit possible.
When you see a huge drop in a coins price, people will sometimes blame it on whales that are dumping on the market. Typically when this occurs more inexperienced investors will start panic selling so they can buy back into the coin at a cheaper price. However, the best strategy is likely to be to hold on to everything and in fact to increase your holdings by buying additional coins at the lower price so that when the price rises again, as it inevitably will, you’ll be in a better position overall.
Whales will use often use this tactic, calling it ‘rinse and repeat’, and this method can be extremely profitable to the whale if timed right. Once the whale starts selling off lower than the market rate, this causes people to start panic selling. Then the whale will watch and re-buy back in when the price of the coin reaches a new low. They just keep on repeating this process over time, thereby accumulating more wealth, more coins, and more control over that coin.
As well as the early Bitcoin investors, whales can also be risk-loving high-net-worth individuals who have recently discovered the Cryptocurrency market as a new arena for money making; or even major institutional investors such as hedge funds and proprietary trading desks that are placing large bets on where the market will move next. There’s a lot of money in Cryptocurrency and so there’s a lot of people now banking on it creating them a massive amount of wealth.
In the early days of the currency, Bitcoin whales traded on only the largest exchanges, and some still do use only these exclusively. However, as the Crypto market has developed and gained recognition, more and more over-the-counter brokers have launched to service large (and small) Bitcoin investors who are trading digital currencies to be able to access more liquidity than the rigid, old-fashioned exchanges can provide.
So if you do trade in Crypto, keep an eye out for the obvious signs of whale activity. If there’s a large, sudden change in the value of a particular Cryptocurrency, that does not seem to relate to any major project announcement or market-moving news then there’s pretty obviously some whale activity behind the scenes. The same goes for a seemingly inexplicable increase in volatility or price spikes in a specific Cryptocoin as it could well mean that a whale has begun to manipulate the market.