Amongst animals of the aquatic habitat, the Whale is at the top of the food chain; while other mid-range fishes can feed on the smaller ones, the Whale remains the ultimate. In fact, unlike other fishes, a whale can announce its presence with a loud splash after slapping the water with its fins.
Similarly, people regarded as whales in crypto lingo are those who are at the top of a cryptocurrency’s distribution change; hence, their actions can significantly affect price movements, unlike smaller fishes, whose movements can barely splash centimeters of water.
Who Are Crypto Whales?
Cryptocurrency Whales or crypto whales are individuals who have a large share of a cryptocurrency’s supply, enough to manipulate the valuation of a cryptocurrency. For example, the largest Dogecoin holder address holds an approximate 40,958,331,475 DOGE, a whopping 30.8% of the cryptocurrency’s entire supply; hence, if this holder sells all their DOGE coin holdings, the Dogecoin’s market capitalization will be depleted by a whopping $2.48 billion.
Normally, cryptocurrency was created to reduce the influence of centralized and financial organizations on the flow of money. With the traditional financial system, wealth is concentrated in the hands of a few wealthy corporations and financial institutions. However, the creation of Bitcoin was expected to create a fresh start for wealth distribution, giving everybody equal opportunity to mine Bitcoin or even acquire as much Bitcoin as they wanted early enough while it was still cheap before the wealth gets centralized among a select few; unfortunately, this wasn’t possible.
Indeed, some Bitcoin early adopters got a piece of the pie, as they earned mining rewards of several blocks, and they acquired Bitcoin while it was cheap; however, it is proven that corporations with substantial wealth in traditional finance have a huge stake in Bitcoin. They include:
Centralized Exchanges: Centralized Exchanges (CEXs) have a habit of acquiring Bitcoin and other cryptocurrencies in large quantities to ensure liquidity and ease of operations for their customers. Indeed, Centralized Exchanges have made it easier for individuals to trade cryptocurrency for fiat and vice-versa. However, these CEXs are often accused of manipulating the perpetual market to allow insider trading and fraud. Although hardly any investigation has proven substantial, researchers from the University of Sydney estimated that Crypto Exchanges engage in fraudulent insider trading.
Interestingly, about 7% of Bitcoin’s total supply can be found on exchanges, particularly ones with high trading volumes, such as Binance, OKEx, and Bitfinex. In fact, according to bitinfocharts.com, Binance has 3 out of the top 5 richest bitcoin wallets, about 2.5% of Bitcoin’s total supply, among other wallets.
Financial Institutions: Although traditional banks hardly engage in backing up their cash reserves with Bitcoin, an example is Grayscale, a digital currency investment service that has pooled funds of several investors, having over 650,000 Bitcoin, about 3% of the circulating supply of Bitcoin.
Individuals: Several early investors of Bitcoin have huge stakes in the currency. The most prominent is Satoshi Nakamoto, the pioneer of the idea; it is predicted that he has mined over 1 million BTC scattered across several wallets. A crypto researcher, Demian Lerner, researched the early mining pattern of Bitcoin and discovered that of the initial 1.8 million that were mined, 1.1 million have never been spent. Indeed, if Satoshi Nakamoto has that much Bitcoin untouched, then he is worth tens of billions of dollars and among the world’s richest men, from his bitcoin stake only – assuming Nakamoto is one person.
However, researchers are of the opinion that Satoshi Nakamoto won’t spend the mined Bitcoin, and he only mined that much in the beginning to secure the network by maintaining a huge hash rate, and as miners increased on the network, he took a back seat.
Regardless, apart from Satoshi Nakamoto, several early investors in Bitcoin, such as the Winklevoss twins, who reportedly invested $11 million in Bitcoin as early as 2013, when a unit was under $150, among others. The Bitcoin rich list contains some individual addresses just south of six-figure BTC amounts, some of which have never spent any of their holdings.
How To Identify Crypto Whales
Typically, anyone with 1,000 BTC can be considered a Bitcoin whale, as they can move substantial weight in the crypto market. However, other cryptocurrencies also have whales existent (as shown in the earlier example with Dogecoin).
Thankfully, the blockchain is a public ledger; hence, the identity of whales isn’t a secret. To check the rich list of any cryptocurrency, you can simply visit its blockchain explorer and locate the asset’s distribution.
How Do Whales Affect The Movement Of Crypto Prices?
When a whale splashes in the water, all the small fishes in its direction are instantly distorted, and they may temporarily lose their bearing. Similarly, due to the large concentration of tokens in a whale’s wallet, large buy or sell orders can significantly influence the market. For example, when Tesla announced a purchase of $1.5 billion worth of Bitcoin, it positively influenced the crypto market, and many smaller traders invested in Bitcoin; however, shortly after, Tesla backtracked on their stance, and it quickened the arrival of the impending bear market.
In fact, a whale moving an asset from a cold wallet to a hot wallet or even a crypto exchange would be of interest to the crypto community and Twitter accounts dedicated to monitoring these movements, and investors may be wary of a whale willing to liquidate holdings or diversify their investments. Hence, if a whale doesn’t want to upset the market, they usually execute transactions in bits; for example, a transaction worth $1 million can be conducted in minuscule amounts, such as $1,000 in 1,000 transactions, spread over days.
How Do Whales Manipulate Crypto Prices For Their Benefit?
The Sell Wall
When whales intend to willfully manipulate the market, especially during a bull run, when prices are guaranteed to go higher, they place massive sell orders to sell their cryptocurrencies; these sell orders are usually lower than other sell orders, and of course, the information is public, and the general public is sent into a panic. Hence, many investors do not want to be caught in the potential downward movement that a splash will cause; as a result, they sell their crypto assets, and some other investors who are totally oblivious to the happenings simply “panic sell” their assets out of ignorance.
In the end, when the whale is satisfied with the price movements, they pull their large sell orders and take a U-turn, buying cryptocurrency. Hence, they get to buy cryptocurrency at lower prices, at the expense of the smaller investors, who “panic sold.” This tactic is called a “sell wall.”
Fear of Missing Out (FOMO) is quite the opposite of the sell wall tactic where whales draw in interest by placing huge buy orders, thereby driving the prices of crypto higher; as a result, they draw in attention, and as prices increase, many people jump in to ride along with the wave. After saturation, the whales start selling off at the top, creating a sharp decline in crypto prices and trapping smaller investors who can no longer afford to sell their assets at a loss.
Over the years, several theories have come up, suggesting that whales possibly collude, especially given the small number of people who control the majority of the wallets. Although there is hardly any proof to corroborate this, the coordinated sell-off of cryptocurrencies to create a sell wall is probably enough circumstantial evidence.
In spite of the fresh opportunity cryptocurrency has provided for wealth redistribution, the ability of whales to take the early initiative has ensured that the crypto ecosystem maintains a similar level of wealth imbalance as the traditional world. However, regardless of how much the whales manipulate the market, the ability of smaller investors to conduct due diligence and not ride along with the wave will ensure their profitability in the long run.