February 7, 2023

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

In the case of Bitcoin (BTC), someone can be considered a whale if they have more than 1,000 BTC, and there are less than 2,500 of them. Since Bitcoin addresses are pseudonyms, it is difficult to determine who owns which wallet.

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

exchanges: Since the mass adoption of cryptocurrencies, cryptocurrency exchanges have become one of the largest wallets of whales because they keep large amounts of cryptocurrencies in their order books.

Institutions and companies: Under CEO Michael Saylor, the software company MicroStrategy now holds more than 130,000 BTC. Other publicly traded companies such as Square and Tesla have bought a huge hoard of Bitcoin. Countries like El Salvador have also purchased a large amount of Bitcoin to add to their cash reserves. There are trustees like Greyscale that hold bitcoins on behalf of major investors.

singly: Many whales bought Bitcoin early when its price was much lower than it is today. Crypto exchange founders Gemini, Cameron and Tyler Winklevoss invested $11 million in Bitcoin in 2013 at $141 per coin, buying more than 78,000 BTC. American venture capitalist Tim Draper bought 29,656 bitcoins at $632 apiece at a US Marshall Service auction. Barry Silbert, founder and CEO of Cryptocurrency Group, attended the same auction and took out 48,000 bitcoins.

BTC wrapped: Currently, more than 236,000 BTC is Covered In Bitcoin (wBTC) ERC-20. These WBTCs are mostly held with custodians who maintain a 1:1 link with Bitcoin.

Satoshi Nakamoto: The mysterious and unknown bitcoin creator deserves its own category. It is estimated that Satoshi may have more than 1 million BTC. Although there is not a single wallet with 1 million bitcoins in it, using on-chain data shows that of the first 1.8 million or so bitcoins created for the first time, 63% were not spent, making Satoshi a multi-billionaire.

Centralization within a decentralized world

Critics of the crypto ecosystem say whales are centralizing this space, perhaps even more central than traditional financial markets. Bloomberg report claimed That 2% of accounts control more than 95% of Bitcoin. It is estimated that the world’s top 1% control 50% of global wealth, which means that wealth inequality in Bitcoin is more pervasive than it is in traditional financial systems: an accusation that breaks the notion that Bitcoin can break central hegemony.

The decentralization of the Bitcoin ecosystem has dire consequences that can make the cryptocurrency market easily manipulable.

However, insights from Glassnode show that these numbers look like this Exaggerated It does not take into account the nature of the titles. There may be some degree of centralization, but this may be one of the functions of free markets. Especially when there are no market regulations and some whales understand and trust Bitcoin more than the average retail investor, this centralization is bound to happen.

Selling Wall

Sometimes, a whale places a huge order to sell a large portion of its bitcoins. They keep the price lower than other sell orders. This leads to volatility, which leads to a general decline in the price of Bitcoin in real time. This is followed by a chain reaction as people panic and start selling their bitcoins at a cheaper rate.

Bitcoin price will only stabilize when the whale withdraws large sell orders. So, the price is now where the whales want it to be so they can accumulate more coins at their desired price point. The next tactic is known as the “selling wall.”

The opposite of this tactic is known as the fear of missing out or FOMO tactic. This occurs when whales exert enormous buying pressure on the market at prices higher than the current demand, forcing bidders to raise the price of their bids so that they can sell their buy orders and execute their buy orders. However, this tactic requires large amounts of capital that are not required to pull off the selling wall.

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

When the whale scattered

Sixty-four of the top 100 addresses have yet to withdraw or transfer any bitcoin, which indicates that the biggest whales may be the biggest scammers in the ecosystem, ostensibly due to the profitability of their investments.

Evidence that whales remain profitable is evident from the chart above. When calculating the 30-day moving average, over the past decade whales have remained profitable more than 70% of the time. In many ways, it is their confidence in Bitcoin that underpins the price action. Being profitable (monthly in this case) for most of their investment period helps cement their belief in the group’s strategy.

Even in 2022, one of the most bearish years in Bitcoin history, exchange balances plummeted, which indicates that most HODLers are hoarding their Bitcoins. Most seasoned cryptocurrency investors refrain from holding their long-term Bitcoin investments on exchanges, using cold wallets to trade.

Senior Seth, founder of Speedbox and a long-term Bitcoin investor, told Cointelegraph:

“Most of the whales have experienced multiple market cycles for Bitcoin to be patient to wait for the next one. In the Bitcoin ecosystem now, whales’ belief in the macroeconomics of inflation and more recently the correlation with the stock markets is bolstered. Data in the whale wallet chain shows that most of them are hackers. Those that appeared during This market cycle has not turned a profit on the sale. There is no reason to believe that whales will abandon the bitcoin ship, especially when there is economic fear of an imminent recession.”

A big point about the macroeconomics and correlation to the stock market can be seen in the chart below, which shows that since the last market cycle in early 2018, Bitcoin has followed traditional investment assets closely.

The bright side of this trend is that Bitcoin has entered the mainstream in terms of consumer sentiment, changing its reputation as a secondary asset. On the other hand, Pearson’s 0.6 correlation with the S&P 500 is in no way a hedge against traditional markets. Other experts in the crypto ecosystem seem frustrated with this trend.

The broader macroeconomics may be an important reason for the relationship between stocks and Bitcoin. The past two years have seen inflows of money into the stock markets unprecedented in history. There are theories that in a prolonged bear market or in terms of financial catastrophes, the relationship with the stock market may break.

What does it mean when the whale sells?

Although just a look at the data on the chain for the past three months shows that the number of whale wallets decreased By about 10%. However, there has been a corresponding increase in wallets holding from 1 BTC to 1,000 BTC. The whales seem to be scoffing at their positions and larger retail investors have accrued in turn, providing liquidity to the whales. The historical trend shows that whenever this happens, there will be a short-term drop in bitcoin prices which will eventually cause the whales to start accumulating more aggressively.

When asked about the recent whale sale, Seth said:

“It is almost inevitable that there will be a period of a few weeks when the whales start selling. These are the mechanics of market action. Currently, the broader market sentiment for Bitcoin is that the bottom is in. There are sentiment analysis tools to confirm this. Some whales may be playing against the trend. , which in turn creates panic in the market. If there is a big sell-off now, bitcoin prices could drop as the retail support will be broken. Only the whales will have the cash to build up after that.”

What the market can learn from a big whale’s point of view is that the future of bitcoin is where the betting should be. Locally, sentiment can be manipulated and prices can be affected. However, in the long run, when the dust settles, scammers will prevail.