Max’s Corner: An Exercise In Crypto Cetology

Max’s Corner: An Exercise In Crypto Cetology

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This past Thursday, the crypto community started buzzing about a whale sighting. Rumors abounded. It was a big one, one of the biggest whales they’d ever seen. 

What does that mean? Well, for those of you who haven’t gotten off the trad finance boat completely yet, whales are the big movers and shakers in the crypto industry. While most daily activity that occurs on crypto exchanges is comprised of small-fry daily traders, when whales move, they have the power of changing tides in the market. 

When considering role whales play in the digital economy, it is important to note that the disparity of Bitcoin distribution is remarkable. One percent of Bitcoin wallets possess 55 percent of the Bitcoin in circulation. To put that in perspective, in the US, where wealth inequality is often the subject of political debate and considered a problem that needs to be addressed, the top one percent is in possession of 35 percent of the nation’s wealth. 

Now, one could rightly object that comparing Bitcoin wealth distribution to US wealth distribution is apples to oranges. They are totally different things based on circumstances and factors of an entirely different scale. However, we are talking about a lot of money, whichever way you cut it. And for an economic system that is often portrayed as a remedy to the problems associated with the traditional financial system, Bitcoin wealth inequality is nothing to scoff at.

The Four Species of Crypto Whale 

Now, in terms of the whales themselves, typically, crypto analysts have identified four kinds of whales. There are traders, early adopters and miners, wallets with lost private keys, and criminals. 

Concerning the traders, analysts have estimated that about 33% of the whales are active traders. These traders vary from individuals who have personally accumulated massive wealth to institutions that collectively work the market. In terms of their specific trading tendencies, trader whales buy the dips. These guys have bought in to Bitcoin for the long term. This is significant because whenever there is a significant downturn in the market, the first instinct of many in the industry is to blame the whales for selling out. However, research has shown otherwise, and as it turns out, big traders tend to operate against the grain, striking when the little fish are panicking. Their effect then is a stabilizing one more often than not. 

The next group of whales are the early adopters and miners, These people tend to have gotten in on the ground floor years ago. The wallets associated with these accounts were created in the early years of Bitcoin. These whales believed in Bitcoin early and were able to acquire vast sums of the currency by spending a relatively small amount of money, or mining when it was much easier. Early adopter whales tend not to trade much of their holdings. Some of them cashed out in 2017 and 18 and made huge fortunes for themselves. 

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The third group of whales are a sad, sad lot. The wallets tied to this group are generally classified as belonging to people who have lost their private keys for good. There are a substantial number of these people. An estimated 212,000 bitcoins are stuck in wallets that have been completely inactive since 2011. At the time of writing, that comes to over $2 billion. 

The last group of whales garners the most attention. These are the cyber criminals. These people have acquired their digital fortunes via hacking and other illicit methods. Just three of the 32 largest Bitcoin wallets have been positively linked with criminal activity, but even with just three, the collective sum at press time is more than a billion dollars. 

The Big Time Crooks

I have used this space before to talk about how the perception of Bitcoin (and by extension all cryptocurrency) as a tool for criminals is not really justified. Since its inception, Bitcoin has been mistakenly characterized as an anonymous digital currency, which has positioned it — in the minds of the press and others who don’t know better — as the ideal solution for criminals looking to hide their tracks. 

Much has specifically been made of cryptocurrency being used by terrorist organizations. When you look at the facts however, this line of thinking just doesn’t hold up. As numerous stories in the press will attest to, Bitcoin is not an anonymous cryptocurrency. Two of the whale criminal wallets have been identified as being connected with the Silk Road dark web marketplace, and the third has been linked to money laundering activities. 

The prevalence of crime connected with Bitcoin is not much different than that of crime connected with the US dollar or any other asset or item of value. Criminals tend to use whatever tools are available to them in order to achieve their ends. 

It is convenient for lawmakers and others whose vested interest is in keeping the current economic system in power to paint cryptocurrency as something dangerous. If it is dangerous, it is only really dangerous to the old guard, who have no problem with chaos and tragedy just as long as it happens to their neighbor and not them. Economic rights are not something a state should have the power to give and take away, not in today’s world. That is why at Bytecoin we fight to push back against the institutional overreach that has defined that has come to define modern life. 

Consider the act that we can identify the biggest whales in the crypto industry and keep tabs on when and where they move their money. Can we do that in traditional finance? Are we ever allowed behind the veil?

Thursday’s Surfacing

Getting back to last Thursday’s whale sighting, the party responsible moved 94,505 bitcoins which comes to just under a billion dollars at press time. There were three possibilities that emerged as sources of the transaction. The first is that the wallet is connected to the Huobi Exchange, which is tied to many of the wallet’s previous transactions. Outside of that, commentators have suggested that the funds belong to the new Bakkt Warehouse project or represent a partial cashing out of the PlusToken ponzi scheme. As of now it is still unclear what exactly happened, and it should be interesting to see what new information comes to light.

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