June 6, 2023

Crypto whales, named after the size of the large mammals that swim in Earth’s oceans, refer to individuals or entities that hold large amounts of cryptocurrency.

In the case of Bitcoin (BTC), if someone holds more than 1,000 BTC and less than 2,500 of them, they can be considered a whale. Since Bitcoin addresses are anonymous, it is often difficult to determine who owns any wallet.

While many people associate the term “whale” with a few lucky early adopters of Bitcoin, the truth is not all whales are the same. There are several different categories:

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

Institutions and companies: Under the leadership of CEO Michael Saylor, software company MicroStrategy already holds more than 130,000 bitcoins. Other public companies such as Square and Tesla also bought large amounts of bitcoin. Countries such as El Salvador have also bought large amounts of bitcoin to increase their cash reserves. There are custodians like Greyscale that hold Bitcoin on behalf of large investors.

personal: Many whales bought Bitcoin early, when its price was much lower than it is today. The founders of cryptocurrency exchanges Gemini, Cameron and Tyler Winklevoss invested $11 million in bitcoin in 2013 at $141 each, buying more than 78,000 bitcoins. American venture capitalist Tim Draper bought 29,656 bitcoins for $632 at the U.S. Marshal Services auction. Digital Currency Group founder and CEO Barry Silbert participated in the same auction and received 48,000 BTC.

Packed Bitcoin: Currently, over 236,000 BTC pack In Wrapped Bitcoin (wBTC) ERC-20 token. These wBTC are primarily held by custodians who maintain a 1:1 peg to Bitcoin.

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a category of his own. It is estimated that Satoshi Nakamoto may have more than 1 million bitcoins. Although no single wallet holds 1 million BTC, using on-chain data shows that 63% of the 1.8 million or so BTC initially created was never spent, making Nakamoto a billionaire.

Centralization in a decentralized world

Critics of the crypto ecosystem say whales have made the space centralized, perhaps even more centralized than traditional financial markets.Bloomberg reports claim 2% of accounts control over 95% of Bitcoin. It is estimated that the top 1% of the world controls 50% of the world’s wealth, which means wealth inequality is more prevalent in Bitcoin than in the traditional financial system: an accusation that shatters the notion that Bitcoin could break centralized hegemony.

The accusations of centralization in the Bitcoin ecosystem have dire consequences and could make the crypto market prone to manipulation.

However, Glassnode’s insights suggest that these numbers appear to be exaggerated And don’t take into account the nature of the address. There may be some degree of centralization, but this may be a function of the free market. Especially in the absence of market regulation, some whales know and trust Bitcoin better than ordinary retail investors, and this centralization is bound to happen.

“Sell the Wall”

Occasionally, whales place large orders to sell large amounts of bitcoin. They keep the price below other sell orders. This can lead to volatility, leading to a general drop in Bitcoin’s real-time price. A chain reaction followed, as people panicked and started selling their bitcoins for cheaper.

The BTC price will only stabilize when whales pull out a large number of sell orders. So, now the price is what the whales want so they can accumulate more coins at the price point they want. The following strategy is known as a “sales wall.”

The opposite of this strategy is known as the “fear of missing out” or “FOMO” strategy. This is when whales put significant buying pressure on the market at prices higher than current demand, forcing bidders to raise their bid prices so they can sell their orders and fulfill their buy orders. However, this strategy requires a lot of capital that doesn’t need to break the sell wall.

Watching the buying and selling patterns of whales can sometimes be a good indicator of price action. There are sites like Whalemap dedicated to tracking every metric of whales, and Twitter handles like Whale Alert, which has always been a guide for Twitter users around the world to keep abreast of whales.

when the whale splashes

64 of the top 100 addresses have yet to withdraw or transfer any bitcoin, suggesting that the biggest whales may be the biggest scammers in the ecosystem, ostensibly because of their profitable investments.

Evidence that whales are mostly staying profitable is clear from the chart above. On a 30-day moving average basis, whales have been profitable more than 70% of the time over the past decade. In many ways, their trust in Bitcoin strengthens the price action. Staying profitable (in this case sequentially) during most of their investments helps to strengthen their confidence in the hodl strategy.

Even in 2022, one of the most bearish years in Bitcoin’s history, foreign exchange balances have fallen, suggesting that most HODLers are hoarding their Bitcoin. Most seasoned cryptocurrency investors avoid leaving their long-term bitcoin investments on exchanges, using cold wallets for hoarding.

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

“Most whales have been through multiple market cycles of Bitcoin before they have the patience to wait for the next one. In the Bitcoin ecosystem now, the macroeconomics of inflation and the recent correlation with the stock market reinforces the whales’ Confidence. On-chain data from whale wallets shows that most of them are hodlers. The ones that came out during this market cycle didn’t realize the profit of the sale. There’s no reason to believe that whales will abandon the Bitcoin ship, especially when there are fears of a recession imminent.”

Kabir’s views on macroeconomics and correlation with the stock market can be observed in the chart below, which shows that Bitcoin has been closely following traditional investment assets since the last market cycle in early 2018.

The silver lining to 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 traditional markets. Other experts in the crypto ecosystem also appear to be frustrated by the trend.

Broader macroeconomics could be a big reason for the correlation between stocks and Bitcoin. The inflows into the stock market over the past few years have been unprecedented in history. There are theories that the correlation with the stock market could break down in terms of a prolonged bear market or financial catastrophe.

What does a whale sell mean?

Although, just looking at the on-chain data for the past three months shows that the number of whale wallets reduce almost 10%. However, wallets with 1 BTC to 1,000 BTC have also increased accordingly. Whales appear to be de-risking their positions, while larger retail investors are in turn adding to their holdings, providing whales with liquidity. Historical trends suggest that whenever this happens, there will be a short-term dip in the price of Bitcoin, which eventually causes whales to start aggressively accumulating.

When asked about the recent whale sell-off, Seth said:

“It’s almost inevitable that whales will start selling within a few weeks. It’s the mechanics of market movement. Right now, Bitcoin’s broader market sentiment is bottoming. There are sentiment analysis tools to confirm that. Some whales may Oppose this trend, which in turn creates more panic in the market. If there is a major sell-off now, Bitcoin price could fall as retail support breaks. Only whales will have liquidity to accumulate.”

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