28 July 2021
Cryptocurrency is a lucrative investment opportunity, but does it make you rich in one shot? Well, the answer is a bit more complex than it sounds. With the potential in the Crypto market, there are also risks involved that otherwise are not so prevalent in the traditional financial market. Since it is a volatile market and many fraudulent activities are associated, it is crucial to research, strategize, plan, analyze, and do risk management. But in this huge Crypto market, you will also come across many investors that play a huge role in manipulating the market valuations.
Whales are the largest creature in the ocean world, and similarly, we have Crypto Whales in the Cryptocurrency world. Crypto whales can be defined as market players that hold a significant amount of Cryptocurrency in the market. It could be anyone from individuals to organizations that are said to believe to be able to influence the Crypto market. It can be simply anyone in the equation with substantial Cryptocurrency holdings that can create a major move in the Crypto market.
A Brief Understanding Of Crypto Whales
Cryptocurrency is based on Blockchain technology, a decentralized network, which is also designed to maintain the anonymity of its users; however, since its public ledger and other features like transparency and time-stamp make Crypto transactions trackable. The anonymity enables the users to hold Cryptocurrency without revealing their identity in the address. Hence, the Crypto whales take advantage of this factor to yield profits through discrete manipulation.
A Crypto whale is an individual or an organization that holds a substantial amount of Cryptocurrency and is in the position to influence or manipulate the market, such as creating price volatility.
Crypto whales usually keep all their holding in a single wallet address, for instance; a Bitcoin whale would prefer to keep 500 BTC in a single wallet address.
While the theory is also based on how Crypto whales do not make one large transaction but rather make several small transactions to avoid attention.
Why does it matter?
Cryptocurrency price is based on various factors, and one such factor is “Supply and Demand”. The increase in demand of the coin increases the price of the particular Cryptocurrency and vice versa for the low demand. Thus, the increase in demand and reduced supply or vice versa drive the price of Cryptocurrency. Similarly, when a large portion of the coin is supplied in circulation, it affects the price of the coins left in circulation. This is followed by when a large portion of coins is liquidated, the coin’s value drops. Thus, Crypto whales use various strategies to execute their plan, such as Rinse with Repetition, Wash Trading, Layering, Spoofing, OTC Trading, Pump and Dump, Bear raid, and so forth.
The above factor is used as a technique by Crypto whales to make profits, for instance, if a whale wishes to acquire coins at a cheaper price. All that he/ she needs to do is to sell a sizeable amount of coins from their assets to create an impact on the market. This would likely result in downward pressure on the Crypto market, leading to a fire sale that would increase the coin’s liquidity at a lower price. Ta-da, the Crypto whale, can now purchase back his coins or more at a cheaper price. Furthermore, they can hold on to their asset, which would lead to reducing the coin supply. Thus, resulting in rising in the price of the coin and increased value.
Crypto whales are considered a problem especially when a Cryptocurrency is unmoved for a period of time in an account, resulting in lowering the liquidity and affecting the price volatility. Volatility is also increased when the Crypto whales move a large quantity of Crypto at one go, or make smaller transactions over a period, creating market distortions. These actions by the Crypto whales create speculations in the market amongst the rest of the investors and traders.
Understanding the Crypto Whales Move
- When the size of the bids is large and significantly increases.
- The sudden cancellation of big orders.
- An unexplained or sudden surge or decline in the Crypto’s price.
- Spike in the trading volume of the Cryptocurrency.
- High flow in the buying percentage or selling percentage.
Crypto Whales in the Crypto Market
According to a study, in February 2021, the largest Bitcoin holdings comprised of 3 Bitcoin wallets that owned about 7.18% of Bitcoin in circulation, making its value worth approximately $621 million. Wherein also the top 100 wallets held 32.2% of Bitcoin, making its value of about $2.78 billion.
Few of the Crypto whales can be identified since they have kept their public addresses known. These Crypto whales are Satoshi Nakamoto, the Winklevoss twins, Tim Draper, Barry Silbert, and many more.
Major Crypto Exchanges are also called Crypto whales as they hold a large number of Cryptocurrencies through the funds of their users. It is stated that despite their large balance, they make small transactions for their users’ or make large transfers between their own addresses. This activity may not necessarily affect the market as a whole but would create some acceleration.
For example, Huobi currently holds the largest Bitcoin address of about 255,000 BTC. This estimation is based on their cold storage address and thus does not necessarily mean that it contains all the funds, but it suggests that the platform is storing most of its Bitcoin on one large address. Similarly, other Crypto exchanges such as Bittrex, Binance, and Bitfinex are also known for holding large wallets.
As per the study by ChainAlysis, the Bitcoin whales group is a cluster involving about 1,600 investors that hold approximately worth $37 billion. This means that they hold around one-third of Bitcoin in circulation.
However, just because there are Crypto whales does not mean that they have complete power on the Cryptocurrency market.
To conclude, does it mean that you have to look for Crypto whales? The answer is yes and no! Looking out and analyzing the coin’s price movement is important. Crypto whales are here to make profits for themselves, which also gives them the position to create a price movement for their benefits. However, it is only stressful to watch out for every move; moreover, you can never be sure if it’s created by Crypto whales or otherwise. Thus, jumping on every wave or being provoked by the Crypto whale can be too risky since you would never know their intention. The intentions could be anything from generating profits to just completely withdrawing their funds. As an investment strategy, you should always keep an eye, analyze, and be updated with the Crypto market. In the end, it is crucial to stick to your plan and try to avoid manipulations by the Crypto whales than jumping on their every wave flow.