Bitcoin whales in the cryptocurrency market: why are they dangerous and how to track their actions?

Large bitcoin holders have a huge impact on the market and the price of the leading cryptocurrency, for example, on March 9, 18,000 coins were moved by $ 1 billion per hour. This raised the BTC rate by 5%.

About 40% of all bitcoins are stored in just over 2,200 addresses. The holders of these wallets are called bitcoin whales. They are able to manipulate the market by moving the price of the coin up and down.

However, an ordinary investor should not be afraid of these large players – whales buy off coins on a drawdown and are most interested in a bullish rally in Bitcoin. So that you can see this for yourself, we have made a detailed analysis of the role of bitcoin whales in the crypto market, and also learned what strategies they follow – invest in the long term or trade – and how to monitor their actions.

Who are Bitcoin Whales?

A Bitcoin whale is a holder of a large amount of bitcoins or a trader with significant capital who has enough BTC to influence the market. There is no exact threshold for determining whale affiliation, but this is usually the name for those who have more than 1,000 coins – about $ 56 million at prices on the day of publication.

Large holders are called whales by analogy with the largest mammals in the ocean. Indeed, due to the large size of positions when trading, bitcoin whales can influence the movement of the market in any direction.

This is similar to the waves that whales can lift – small fish (ordinary investors) simply have to ride on such waves without the ability to influence the course. Therefore, retail investors are forced to go with the flow and guess its direction, while whales are able to create the movement of the market themselves.

Bitcoin whales can be considered as individuals, for example, the twins Tyler and Cameron Winklevoss (founders of the Gemini crypto exchange), Barry Silbert (founder and head of the Digital Currency Group) or Tim Draper (legendary venture capitalist and co-founder of Draper Fisher Jurvetson), and funds and Bitcoin investing companies such as venture capital firm Pantera Capital, IT and business intelligence firm MicroStrategy and, starting this year, electric car maker Tesla.

Largest bitcoin holders

Among the largest holders of BTC: early investors and miners who managed to get hundreds, thousands and even tens of thousands of bitcoins for almost nothing (although many of them later could not even get access to their coins), as well as large investment groups, companies and hedge funds , crypto exchanges and mining pools.

Most bitcoin whales try to remain anonymous. Still, some of them are well known to the crypto community.

So, the largest holder of bitcoin is its creator Satoshi Nakamoto. He has about 1.1 million BTC. But since the disappearance of Satoshi, his bitcoins have never moved from his wallets. If Satoshi is alive, then it seems he decided never to sell them. Otherwise, any action with such a huge amount of bitcoins could bring down the market.

Other major holders include:

  • The Bulgarian government, which has 213 519 military technical cooperation confiscated from criminals back in 2017;
  • Twins Cameron and Tyler Winklevoss – they have between 120,000 and 179,000 BTC;
  • Barry Silbert, head and founder of the Digital Currency Group, which has invested in over 75 cryptocurrency companies. In 2014, he won an auction held by the US Federal Marshals Service, resulting in 48,000 BTC;
  • Tim Draper, investor and founder of Draper Associates. In 2014, he also acquired just under 30,000 BTC through an auction of the US Federal Marshals Service. Interestingly, these bitcoins were confiscated from the creator of the anonymous marketplace Silk Road Ross Ulbricht, who is currently serving a life sentence for drug trafficking, hacker attacks and conspiracy to launder money.

Also known are the names of large bitcoin holders who own coins worth more than a billion dollars. Among them:

  • Michael Novogratz – Founder and CEO of Galaxy Digital;
  • Changpeng Zhao – CEO and Founder of the Binance cryptocurrency exchange;
  • Matvey Rozak – founder of the Tally Capital investment fund;
  • Brock Pierce – Co-founder of Blockchain Capital and Block.one;
  • Brian Armstrong – CEO and Founder of Coinbase
  • Roger Ver – Bitcoin and Bitcoin Cash developer (in 2014 he owned about 400,00 BTC);
  • Gavin Andresen is an early Bitcoin developer.

In terms of funds, Bitcoin has been invested in: Blockchain Capital, Pantera Capital, Bitcoins Reserve, Binary Financial, Bitcoin Investment Trust, Coin Capital Partners, Falcon Global Capital, Fortress and Global Advisors Bitcoin Investment Fund, among others.

And among crypto exchanges, Binance, Coinbase, Huobi, BitFinex and a number of others are considered the largest holders of the first cryptocurrency. However, it should be emphasized that formally these funds belong to their users, and the movement of funds within trading ecosystems does not have a strong impact on the market.

In 2020 and 2021, several large companies have also joined the bitcoin whales. For example, according to Bitcoin Treasuries, the companies with the most bitcoins are:

  • MicroStrategy – 91 064 BTC;
  • Tesla – 48,000 VTS;
  • Galaxy Digital – 16,402 BTC;
  • Square – 8 027 ВТС.

It is likely that many more companies will follow the lead of Tesla and MicroStrategy and become Bitcoin whales in 2021.

For example, on March 8, the Norwegian company Aker created a division to buy bitcoin and funded it for $ 58 million, and the Chinese company Meitu bought BTC and ETH for $ 40 million.

Why are bitcoin whales dangerous?

According to BitInfoCharts, from 1,000 to 10,000 BTC is stored at 2,225 addresses. This means that 0.01% of all Bitcoin holders control about 42% of all coins.

Another 88 purses store from 10,000 BTC – about 13% of all coins. Only two addresses contain over 100,000 BTC – 1.5% of the total supply.

This concentration of crypto capital means that a relatively small number of holders of the first cryptocurrency can significantly affect its price: bring down or, conversely, artificially raise it. The overconcentration of bitcoins in a small number of whales gives them the opportunity to manipulate the market, increases the volatility of BTC and reduces its liquidity – after all, the coins that are stored in the wallet do not circulate in the market.

The current cryptocurrency market capitalization is about $ 1.7 trillion. This seems like a huge amount, but at the same time it is very small in comparison, for example, with the US stock market – its capitalization is about $ 50 trillion. Therefore, in such a relatively small market, large coin holders are able to influence the price of BTC and other assets. This is especially true for altcoins with low liquidity – their rate can be propumped (artificially inflated) in just a few hours. If you are interested in learning about how pump and dump circuits work, we recommend reading our material on this topic.

There are several main ways in which bitcoin whales can influence the crypto market. Basic:

  • Selling large quantities of bitcoins below market prices  can trigger a panic sell-off on the part of small traders, causing the coin’s price to drop significantly. After that, the initiator of the sale can buy bitcoins at a more favorable rate, get their coins back, and at the same time earn. This pattern can be repeated countless times. At the same time, it works in the opposite direction – when a large amount of BTC is bought on the market, a sudden rise in the price of bitcoin occurs.
  • Manipulation of the bitcoin rate through unexecuted orders . Bitcoin whales can also influence the price of a coin by manipulating orders on the exchange. The trader simply places large buy or sell orders, but in reality he does not plan to execute them. As soon as the price of the coin moves in the desired direction for the whale, the order is canceled. So, for example, if a trader places an order to buy a large number of coins at a price higher than the market price, then the BTC rate will go up. Then this trader cancels his order and, instead of buying, sells his bitcoins at a new, more favorable price for him.

The relatively small cryptocurrency market capitalization and regulatory gaps make the digital asset market an almost ideal field for manipulation. Moreover, this vulnerability to manipulation is one of the reasons why the US Securities and Exchange Commission (SEC) has not yet approved the launch of a Bitcoin ETF in the US.

How do whales trade bitcoin?

In order not to crash the market, most of the big players do not trade on conventional cryptocurrency exchanges. Instead, they buy and sell coins on the over the counter (OTC) market, which means transactions take place outside exchanges.

In the OTC market, the parties simply agree on a fixed transaction price (as a rule, it is cheaper than on a regular exchange). This helps them maintain their anonymity and also provides access to more liquidity than crypto exchanges. Moreover, such trading on the OTC market does not affect the price of bitcoin.

To do this, bitcoin whales use specialized OTC platforms such as Genesis Trading, Cumberland and Circle. They can only be traded by large investors: the entry threshold is between $ 100,000 and $ 250,000. Several major bitcoin exchanges, including Kraken, Gemini and Coinbase, have also opened special OTC tables and clearing centers to service bitcoin whale accounts.

Bitcoin whales can also be purchased on regular exchanges. For example, in August 2020, MicroStrategy acquired 16,796 BTC, completing 88,617 trades in 74 hours, buying approximately ~ 0.19 BTC every 3 seconds.

Whales fuel Bitcoin rallies and buy back coin drawdowns

Large players can not only manipulate the market for their own purposes, but also influence it positively – buy back the fall in the rate, pushing the rally forward. In fact, most of the time bitcoin whales move the price of BTC up, not down. After all, whales, like other coin holders, benefit from expensive bitcoin.

According to 2017 Chainalysis data, whales’ actions tend to drive the price up, not down. And analysts at CoinMetrics believe that the fall in the crypto market in March 2020 was caused by small short-term investors. Whales generally tend to hold coins for a long time, but small players discard their coins at the first turbulence.

A joint report by OKEx and data company Kaiko provides an analysis of how retail investors, professionals and whales traded bitcoin in November 2020.

Here are the main findings of the report:

  • The bitcoin whales spurred the fall crypto rally by selling their BTC to retail investors who continued to gain ground. At the same time, during periods of a fall in the value of bitcoin, large holders bought back coins, even when retail investors dumped their assets in panic.
  • Whales try to buy cheap and sell dear;
  • The whales’ strategy is to disrupt the market, shake out panic-stricken retailers, and capitalize on opportunities to buy relatively cheap coins.
  • Small investors, however, have only two options: to sail on the crest of a wave or against it;
  • The whales are not only cashing in on small traders who dump their bitcoins during a dip. According to OKEx, large traders may have prevented Bitcoin’s price from falling further and instead stimulated every price rally, potentially profiting from selling BTC at higher prices.

Moreover, according to the Santiment company, bitcoin whales, which own 43.29% of the total supply, directly influenced the February jump in the value of MTC to a record high of $ 58,000. According to analysts from Santiment, the whales bought bitcoins 12 days before the price record. Therefore, they recommend paying attention to things like the accumulation of coins from large holders – this is a direct indicator of a bullish rally. Over the past year, the number of bitcoin holders with 1,000 BTC and up to 10,000 BTC has increased by 30% – from about 1,700 to 2,250. At the peak of the price in February, this figure even reached 2,500.

According to Material Indicators analysts, during the BTC drawdown in late February – early March, bitcoin whales redeemed the entire fall. Then the company’s experts recorded a record number of orders for the purchase of BTC in the amount of $ 100,000 to $ 1,000,000 on the Binance exchange. Large coin purchases have also been recorded on Coinbase Pro.

There is a popular belief among the crypto community that whales want to control the entire market. But in fact, the more players on the market, the more expensive MTC and the richer the large holders become. The ruin of small investors is not profitable for the whales – after all, in this case, the coin rate will fall.

How to track the actions of bitcoin whales?

Due to the decentralized nature of the blockchain, all transactions on the Bitcoin network are transparent. This allows any trader to track the operations of major players. Therefore, the problem is not how to track, but how exactly to interpret the information about the actions of the whales.

You can track the operations of major players using special services. For example, via Whale Alert or Whale Trace.

But if you are not an active trader, you do not need to closely monitor the actions of the whales. Your task is to notice the trend set by a major player in time.

To do this, it is enough to monitor the situation on large platforms and track large transfers to them. You should be especially careful if large transactions take place on several exchanges at once.

The manipulations of whales on a specific trading platform can be tracked by the list of large orders, as well as by their sudden cancellations and a sharp acceleration of the bitcoin trading volume. If you see a sharp increase in orders to buy or sell bitcoins, wait for local highs or lows.

The influence of whales is felt most strongly in the altcoin market. The price of coins with a small market cap can change significantly if a large holder decides to sell part of their portfolio. Therefore, before investing in low-cap altcoins, it is important to know how many large players there are among their holders. It is important not to fall for the pump and dump scheme, when the price of a coin artificially rises sharply, and then drops just as sharply.

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