The term ‘Bitcoin Whale’ typically refers to an individual in possession of large amounts of Bitcoin.
The Bitcoin whales have the potential to swing the cryptocurrency market towards their preferential price. These investors are usually blamed for dumping on the market if there is any substantial drop in the price of the Bitcoin. They’re also called “Whales” because like the whales, these people are also the biggest creatures in the cryptocurrency ocean. And like the whales they can also overpower smallholders due to their sheer size.
The large bitcoin holding of the Bitcoin whales can influence many smallholders with a handful of successful trading strategies.
Presumably, Satoshi Nakamoto, the founder of Bitcoin could be the biggest whale due to the creator’s possession of 1 million Bitcoins. However, it is significant to note that these whales don’t necessarily have to be individuals, they can be an organization too.
Bitcoin Whales And The Crypto Market
The Bitcoin Whales use a host of methods to sway the market in their favor. The most prominent tactic that these whales use is commonly called the ‘rinse and repeat cycle.’ Such a tactic can be very effective if used correctly and accurately timed. Bitcoin Whales can profit a lot from this method. Such a trick entails the bitcoin whale to sell off a chunk of his coins just below the market value.
A development of this sort creates a situation of panic in the market, and the smaller players start selling their coins too. The panic selling results in the bitcoin prices hitting a new low. This is where the whales step in and purchase many more coins than they initially started with; this ‘rinse’ is followed by the ‘repeat’ process. Whales hold an extraordinarily high number of coins. It helps them to throw their weight around to either push the bitcoin price up or down. Such a strategy helps them in the accumulation of more bitcoins.
Bitcoin whales don’t exactly need to use their Bitcoins to influence the market; merely bluffing with the buy and sell walls can also help them meet their desired goals. An order book characterizes the exchanges in crypto markets. This order book facilitates the trading. Here a potential buyer can choose to purchase or sell at a specified price.
For example, traders will usually buy if the market rates drop, and sell if the rates go higher.
Placing an order in the order book requires legitimate ownership of sufficient funds to cover the order. It means not only the whales but also the smallholders can bluff their way around to make the existence of buy or sell walls look authentic. However, due to this pretense, the buy and sell walls vanish just before the prices get too close. Nevertheless, a few buy and sell walls are quite authentic and can bring about a massive change in fortunes if they can dissolve someone’s assets.
Bitcoin Whales And Crypto Exchanges
Often, the whales don’t trade on traditional exchanges because their massive holdings could create a state of panic and stir in the market. Over the counter trading (OTC) facilitates the purchase of large amounts of bitcoins by the big buyers and institutional traders. This prevents them from catching the eyes of the public. These off the record exchanges ensure the privacy of the bitcoin whales. These OTC markets only allow traders who purchase extensive amounts of bitcoin at a time, thereby setting the minimum requirement for entry. Also, the exclusivity of these OTC markets ensures that only a select few know the information regarding the private exchanges. Such transactions are evident, however, from the control exercised upon 17.3 percent of the issued currency by the top 100 bitcoin addresses.
In October 2014 a Bitcoin whale managed to liquidate thousands of bitcoins for $300 per Bitcoin. Many traders opined that such an action would crush the market. However, buyers tore away the order. Subsequently, the prices of the bitcoin surged to $375. Many bitcoin investors felt elated by their victory because such a gigantic whale failed to influence the market. However, we can never overlook the risk of a massive swing in the bitcoin market.
Almost 40% of the Bitcoins are in possession of 1000 users. Many of these users have known each other for years and have stuck with the coin through its thick and thin. These whales can gang up to coordinate their moves and tank or prop up the market. Any such scenario will witness the prices plummet to an all-time low. Therefore, they have the potential to cause a significant disruption in the cryptocurrency market.
Whales have remained a significant aspect part of the bitcoin space. Most crypto fanatics place the onus of ominous market indications on them. Also, people ask questions in several bitcoin forums about the number of coins they require to become a whale. However, there is no fixed answer to this question. The answer lies anywhere between 1,000 to 10,000 bitcoins according to the answers on various bitcoin forums. The small market capitalization of bitcoin leads many people to believe that whales can sway the market.
As bitcoin is not a security but a digital currency, there is no law which prohibits a group from buying enough, and thereby pushing the price up and consequently cashing out in minutes. Such an assumption isn’t without evidence as orders worth a few million dollars can significantly impact the market. However, as the bitcoin continues getting stronger, and more money is poured into it, experts believe that more significant bitcoin whales have to come up to shake things up. Moreover, these whales won’t dump their assets. It is because of the faith that they have posted in the long-term potential of bitcoins. Due to the enormous amount of bitcoin and bitcoin cash that these whales hold, it would be a rather far-fetched idea for the skeptics to destroy either of these two.
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