How Bitcoin Whales Are Making A Splash In Markets And Moving Prices

Taking their names from the size of the huge mammals that swim around the Earth’s oceans, cryptocurrency whales refer to individuals or entities that hold large amounts of cryptocurrency.

In the case of Bitcoin (BTC), someone can be considered a whale if they own more than 1,000 BTC, and there are fewer than 2,500. Because Bitcoin addresses are pseudonymous, it is often difficult to determine who owns a wallet.

While many associate the term “whale” with some lucky early adopters of Bitcoin, indeed not all whales are created equal. There are several categories:

Exchanges: Since the mass adoption of cryptocurrencies, crypto exchanges have become some of the largest whale wallets as they have large amounts of crypto in their order books.

Institutions and companies: Under CEO Michael Saylor, software company MicroStrategy has gotten hold of more than 130,000 BTC. Other publicly traded companies such as Square and Tesla have also bought large amounts of Bitcoin. Countries like El Salvador have also bought a significant amount of Bitcoin to add to their cash reserves. There are custodians like Greyscale that hold Bitcoins on behalf of major investors.

Individuals: Many whales bought Bitcoin early when the price was much lower than today. The founders of crypto exchange Gemini, Cameron and Tyler Winklevoss, invested $11 million in Bitcoin at $141 per coin in 2013 and bought more than 78,000 BTC. US venture capitalist Tim Draper bought 29,656 BTC for $632 each at a US Marshal’s Service auction. Digital Currency Group founder and CEO Barry Silbert attended the same auction and acquired 48,000 BTC.

Packaged BTC: Currently there are more than 236,000 BTC packed in the Wrapped Bitcoin (wBTC) ERC-20 token. These wBTCs are usually kept with custodians that maintain the 1:1 link with Bitcoin.

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a category of its own. It is estimated that Satoshi has more than 1 million BTC. While there is no single wallet with 1 million BTC, the use of on-chain data shows that of the first 1.8 million BTC created for the first time, 63% were never spent, making Satoshi a multi-billionaire .

Centralization within the decentralized world

Critics of the crypto ecosystem say whales make this space centralized, perhaps even more centralized than traditional financial markets. A Bloomberg report claimed that 2% of accounts control more than 95% of Bitcoin. Estimates state that the top 1% of the world control 50% of global wealth, meaning wealth inequality in Bitcoin is more prevalent than in traditional financial systems: an accusation that shatters the notion that Bitcoin could potentially break through centralized hegemony.

The accusation of centralization in the Bitcoin ecosystem has serious consequences that could potentially make the crypto market easily manipulable.

However, insights from Glassnode show that these numbers appear to be overdone and do not take into account the nature of addresses. There may be some degree of centralization, but that may be a function of free markets. Especially when there is no market regulation and some whales understand and trust Bitcoin more than the average retail investor, this centralization will inevitably happen.

The “sales wall”

Sometimes a whale will place a huge order to sell a huge chunk of their Bitcoin. They keep the price lower than other sell orders. That causes volatility, resulting in the general decline in Bitcoin’s real-time prices. This is followed by a chain reaction where people panic and start selling their Bitcoin at a lower price.

The BTC price will stabilize only when the whale draws its big sell orders. So now the price is where the whales want it so they can collect more coins at the desired price. The next tactic is known as a “selling wall.”

The opposite of this tactic is known as the Fear of Missing Out or the FOMO tactic. This is when whales exert massive buying pressure in the market at prices higher than current demand, forcing bidders to increase the price of their bids so that they sell orders and fulfill their buy orders. However, this tactic requires significant amounts of capital that is not necessary to break through a sales wall.

Watching whales’ selling and buying patterns can sometimes be good indicators of price movements. There are websites like Whalemap dedicated to tracking every metric of whales and Twitter handles like Whale Alert, which has been a guide for Twitter users around the world to stay on top of whale movements.

When a whale makes a splash

Sixty-four of the top 100 addresses have not yet withdrawn or transferred Bitcoin, showing that the biggest whales can be the biggest hodlers in the ecosystem, ostensibly due to the profitability of their investment.

Evidence that whales usually remain profitable is evident from the chart above. When calculated on a 30-day moving average, whales have remained profitable more than 70% of the time over the past decade. In many ways, their faith in Bitcoin is what amplifies the price action. Being profitable (month-to-month in this case) for most of their investment period helps bolster their confidence in the hodl strategy.

Even in 2022, one of the most bearish years in Bitcoin history, exchange rates have fallen, showing that most HODLers are stocking up on their Bitcoin. Most seasoned crypto investors refrain from keeping their long-term investments in Bitcoin in exchanges and use cold wallets for hodling.

Kabir Seth, the founder of Speedbox and a long-term investor in Bitcoin, told Cointelegraph:

“Most whales have seen multiple Bitcoin market cycles to have the patience to wait for the next one. In the Bitcoin ecosystem, whale confidence is now bolstered by the macroeconomics of inflation and more recently by its correlation with stock markets. On-chain data from whale wallets shows that most are hodlers. Those who have come through this market cycle have not made a realized profit to sell. There is no reason to believe that whales will abandon the Bitcoin ship, especially when there is economic fear of an impending recession.”

Kabir’s point on macroeconomics and correlation with the stock market can be seen in the chart below, which shows that Bitcoin has closely followed traditional investment assets since its last market cycle in early 2018.

The silver lining in this trend is that Bitcoin has entered the mainstream in terms of consumer confidence, changing the reputation of a peripheral asset. On the other hand, a correlation of 0.6 Pearson with the S&P 500 is in no way a hedge against the traditional markets. Other experts within the crypto ecosystem also seem frustrated with this trend.

Broader macroeconomics may be an important reason for the correlation between stocks and Bitcoin. In recent years, there has been an influx of funds into stock markets that has been unparalleled in history. There are theories that in a drawn-out bear market or in terms of financial catastrophes, the correlation with the stock market could break.

What does it mean when a whale sells?

Although, just looking at the data in the chain for the past three months, it appears that the number of whale wallets declined by almost 10%. However, there is a corresponding increase in owner portfolios from 1 BTC to 1,000 BTC. The whales appear to be shrinking their positions and the larger private investors have in turn piled up, giving the whales liquidity. The historical trend shows that when this happens, there will be a short-term decline in Bitcoin prices, eventually leading to whales accumulating more aggressively.

When asked about the very recent whale sale, Seth said:

“It is almost inevitable that there will be a period of a few weeks when the whales start selling. This is the mechanics of market movements. Currently, Bitcoin’s broader market sentiment is that the bottom is in. There are sentiment analysis tools to confirm this. Some whales may be playing against this trend, which in turn is causing a greater panic in the market. If there is a major sell-off now, Bitcoin prices could fall as retail support will break. Only whales will then have the liquidity to accumulate.”

What the market can learn from the point of Kabir and the whales is that the future of Bitcoin is where to bet. Locally, sentiments can be manipulated and prices affected. In the long run, however, when the dust settles, hodlers will prevail.