To begin, we must clarify just what the term ‘whale’ is referring to. In the case of cryptocurrencies, it refers to someone with a lot of money, who is in the position to buy or sell in large volumes, which can dramatically move the market.
Because, in the grand scheme of things, the cryptocurrency market is actually relatively small – it has a total market capital of approximately $350 billion – this means that there are some investors who have the ability to drastically affect the price of one cryptocurrency; such as Bitcoin.
It is important to be aware of Bitcoin Whales and how they can affect the cryptocurrency market. They are most commonly early Bitcoin adaptors who, as a result are sitting on millions in cryptocurrency. Although, it is worth noting that they could also be risk loving high net worth individuals, who may have recently discovered the cryptocurrency market, as a way of making money, or major institutional investors who are placing large bets on where the market will move to next.
When you consider that 1,000 people own 40% of all Bitcoin, you can easily see that there are some whales about, who, should they sell large chunks of their Bitcoin will cause significant damage to the overall price.
Bitcoin whales previously would trade on the largest and most liquid Bitcoin exchanges; but the market has matured and OTC brokers have started to provide services for large Bitcoin investors, in order to preserve their anonymity.
Although Bitcoin whales can have a huge impact on the Bitcoin market, where they are likely to impact the most is the altcoin market. The market capitalisation is less than $100 million, so if a whale buys or sells a huge amount it could cause a huge move in the market. If you are considering investing in a smaller altcoin, it is advisable to look at the wealth distribution to help you identify possible whales.
There are some ways in which you can identify potential whales, which has become more difficult over the years, but one of the ways is to monitor the wallet addresses of the largest holders, which will help you to stay alert of any major shifts in cryptocurrency. As well as this, try monitoring order books. If there is a sudden huge order to buy or sell, it should alert you to a potential whale. You can also check any changes to a particular cryptocurrency that has not been linked to any announcement. If it is completely unexpected, it could mean that a potential whale has entered the market.
Although these are definitely something to be aware of, it should be noted that there are always whales in financial markets, and as more institutional investors enter the market, the number of whales will also increase. These don’t have to be a really bad thing though, and you will never be able to eliminate them completely, but what is important is for investors to know what they are looking out for, so they can be prepared.