How Bitcoin Whales Strike the Markets and Move Prices

by · August 7, 2022

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

When it comes to Bitcoin (BTC), someone can be considered a whale if they have over 1,000 BTC, and there are less than 2,500 of them out there. Since 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 created equal. There are several different categories:

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

Institutions and companies: Under CEO Michael Saylor, software firm MicroStrategy has come to hold over 130,000 BTC. Other listed companies such as Square and Tesla have also acquired 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 large investors.

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

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

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a separate category. It is estimated that Satoshi may have over 1 million BTC. Although no single wallet holds 1 million BTC, using chain data shows that of the first 1.8 million BTC created, 63% have never been spent, making Satoshi a multi-billionaire.

Centralization in the decentralized world

Critics of the crypto ecosystem say that whales make this space centralized, perhaps even more centralized than the traditional financial markets. A Bloomberg report claimed that 2% of accounts controlled over 95% of Bitcoin. Estimates say that the top 1% of the world controls 50% of global wealth, meaning that wealth inequality in Bitcoin is more widespread than in traditional financial systems: an accusation that undermines the notion that Bitcoin can potentially break centralized hegemonies.

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

However, insight from Glassnode shows that these figures appear to be exaggerated and do not take into account the nature of the addresses. There may be some degree of centralization, but that may be a function 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.

“Sales Wall”

Sometimes a whale places a massive order to sell a large portion of their Bitcoin. They keep the price lower than other sell orders. It causes volatility, resulting in a general decrease in the real-time prices of Bitcoin. This is followed by a chain reaction where people panic and start selling Bitcoin at a cheaper price.

The BTC price will stabilize only when the whale withdraws its large sell orders. So now the price is where the whales want it so they can collect more coins at the desired price point. The following tactic is known as a “sales wall.”

The opposite of this tactic is known as the Fear of Missing Out, or FOMO, tactic. This is when whales put massive buying pressure on the market at higher prices than current demand, forcing bidders to raise the price of their bids so that they sell orders and fill their buy orders. However, this tactic needs significant amounts of capital which is not necessary to get a wall of sales.

Watching the selling and buying patterns of whales can sometimes be good indicators of price movements. There are sites like Whalemap dedicated to tracking every whale count 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 a whale splashes

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

The evidence that whales largely remain profitable is clear from the graph above. When calculated for a 30-day moving average, over the past decade, whales have remained profitable over 70% of the time. In many ways, their confidence in Bitcoin is what is strengthening the price action. Being profitable (month-to-month in this case) for most of the investment period helps strengthen their belief in the hodl strategy.

Even in 2022, one of the most bearish years in the history of Bitcoin, currency balances have decreased, showing that most HODLers are stocking up on Bitcoin. Most experienced crypto investors refrain from keeping their long-term Bitcoin investments in exchanges, using cold wallets for hoarding.

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

“Most whales have seen several market cycles of Bitcoin to have the patience to wait for the next one. In the Bitcoin ecosystem now, the faith of whales is reinforced by the macroeconomics of inflation and recently the correlation with the stock markets. Data on the chain of whale wallets shows that they most of them are hodlers. Those who have come during this market cycle have not made realized profits to sell. There is no reason to believe that whales will abandon the Bitcoin ship, especially when there are economic fears of an impending recession.

Kabir’s point about macroeconomics and correlation with the stock market can be observed in the graph below, which shows that since the last market cycle in early 2018, Bitcoin has closely followed traditional investment vehicles.

The silver lining in 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 0.6 Pearson correlation with the S&P 500 is by no means a hedge against the traditional markets. Other experts in the crypto ecosystem also seem to be frustrated by this trend.

Broader macroeconomics may be an important reason for the correlation between stocks and Bitcoin. In the last couple of years, there has been an influx of funds into stock markets that was unprecedented in history. There are theories that in a prolonged bear market or in the form of financial disasters, the correlation with the stock market can be broken.

What does it mean when a whale sells?

Although just looking at the data from the chain for the last three months shows that the number of whale wallets decreased by almost 10%. However, there has been a corresponding increase in wallets holding from 1 BTC to 1000 BTC. The whales appear to be paring their positions and the larger retail investors have been accumulating in turn, providing liquidity to the whales. The historical trend shows that when this happens, there will be a short-term decline in Bitcoin prices that will eventually cause whales to aggressively start accumulating more.

When asked about the recent whaling, Seth said:

“It is almost inevitable that there will be a period of a few weeks when the whales start to sell. This is the mechanics of market movements. At the moment, the broader market sentiment for Bitcoin is that the Bottom is in. There are sentiment analysis tools to confirm this. Some whales may play against this trend, which in turn creates a greater panic in the market. If there is a big selloff now, Bitcoin prices could decrease as the retail support will break. Only whales will have the liquidity to accumulate then.”

What the market can learn from Kabir’s point and the whales is that the future of Bitcoin is where to bet. Locally, feelings can be manipulated and prices influenced. But in the long run, when the dust settles, hodlers will prevail.