How Bitcoin whales are causing a stir in the markets and moving prices

Taking their names from the size of the huge mammals swimming 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 hold more than 1,000 BTC, and there are less 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, not all whales are the same, indeed. There are several different categories:

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

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

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

Wrapped BTC: Currently, more than 236,000 BTC are envelope in the Wrapped Bitcoin (wBTC) ERC-20 token. These wBTCs are mostly held by custodians who maintain the 1:1 peg with Bitcoin.

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a category of its own. It is estimated that Satoshi might have over a million BTC. Although there is not a single wallet containing 1 million BTC, using 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 in the decentralized world

Critics of the crypto ecosystem say whales are making this space centralized, perhaps even more centralized than traditional financial markets. A Bloomberg report claims that 2% of accounts controlled more than 95% of Bitcoin. Estimates indicate that the world’s richest 1% control 50% of global wealth, meaning that wealth inequality in Bitcoin is more widespread than in traditional financial systems: an accusation that shatters the idea that Bitcoin has the potential to break centralized hegemonies.

The burden of centralization in the Bitcoin ecosystem has dire consequences that can potentially make the crypto market easily manipulated.

However, information from Glassnode shows that these numbers appear to be exaggerated and disregard the nature of the addresses. There may be some degree of centralization, but it 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 is inevitable.

The “selling wall”

Sometimes a whale places a massive order to sell a huge chunk of their Bitcoin. They keep the price lower than other sell orders. This causes volatility, leading to the general reduction in Bitcoin real-time prices. This is followed by a chain reaction where people panic and start selling their Bitcoin for a cheaper price.

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

The opposite of this tactic is known as the fear of missing out or FOMO tactic. This is when whales exert massive buying pressure on the market at prices higher than current demand, causing bidders to raise the price of their bids so that they sell orders and fill. their purchase orders. However, this tactic requires substantial capital which is not necessary to remove a sell wall.

Observing whale selling and buying patterns can sometimes be a good indicator of price movements. There are websites like Whalemap which are dedicated to tracking every whale metric and Twitter handles like Whale Alert which has been a guide for Twitter users around the world to keep up to date with whale movements.

When a whale splashes

Sixty-four of the top 100 addresses have yet to withdraw or transfer Bitcoin, showing that the biggest whales could be the biggest hodlers in the ecosystem, apparently due to the profitability of their investment.

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

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

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

“Most whales have seen several bitcoin market cycles to have the patience to wait for the next one. In the Bitcoin ecosystem now, whale faith is reinforced by the macroeconomics of inflation and more recently, the correlation with stock markets. On-chain data from whale wallets shows that most of them are hodlers. Those who came during this market cycle did not make a profit to sell. There is no reason to believe that the whales will abandon the Bitcoin ship, especially when there is economic fear of an impending recession looming.

Kabir’s take on the macro economy and the 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 closely tracked traditional investment assets.

The silver lining to this trend is that Bitcoin has entered the mainstream in terms of consumer sentiment, changing its reputation as a peripheral asset. On the other hand, a correlation of 0.6 Pearson with the S&P 500 does not in any way imply a hedge against traditional markets. Other crypto ecosystem experts also seem frustrated with this trend.

A larger macroeconomy could be an important reason for the correlation between stocks and Bitcoin. The last two years have seen inflows into the stock markets unprecedented in history. There are theories that in a prolonged bear market or in terms of financial disasters, the correlation with the stock market could break.

What does it mean when a whale sells?

However, just looking at on-chain data for the past three months shows that the number of whale wallets decreases by almost 10%. However, there has been a corresponding increase in wallets that hold from 1 BTC to 1,000 BTC. The whales appear to be reducing their risk, and larger retail investors are hoarding 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 lead to whales accumulating more aggressively.

Asked about the most recent sale of whales, Seth said:

“It is almost inevitable that there will be a period of a few weeks where the whales start to sell. This is the mechanics of market movements. Currently, the broader Bitcoin market sentiment is that the bottom is in. There are sentiment analysis tools to confirm this. Some whales could play against this trend, in turn creating greater panic in the market. If there is a selloff now, Bitcoin prices could fall as the retail support will break. Only the whales will then have the liquidity to accumulate.

What the market can learn from the perspective of Kabir and the whales is that Bitcoin’s future is where its bet should be. Locally, sentiments can be manipulated and prices can be influenced. However, in the long run, when the dust settles, the hodlers will prevail.