How Bitcoin whales take a dip in the markets and move prices

Deriving their names from the size of the huge mammals that swim in the oceans of the earth, cryptocurrency whales refer to individuals or entities that hold large amounts of cryptocurrency.

In the case of Bitcoin (BTC), someone can be considered a whale if they have more than 1,000 BTC and there are less than 2,500 out there. Since Bitcoin addresses are pseudonyms, it is often difficult to ascertain who owns a wallet.

While many associate the term “whale” with some lucky Bitcoin early adopters, in fact not all whales are created equal. There are several categories:

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

Institutions and companies: Under CEO Michael Saylor, the MicroStrategy software company has come to hold over 130,000 BTC. Other publicly traded companies like Square and Tesla have also bought large amounts of Bitcoin. Countries like El Salvador have also bought a substantial amount of Bitcoin to add to their cash reserves. There are custodians like Greyscale who hold Bitcoin on behalf of large investors.

Individuals: Many whales bought Bitcoin early when its price was much lower than today. Cryptocurrency exchange founders Gemini Cameron and Tyler Winklevoss invested $ 11 million in Bitcoin in 2013 at $ 141 per coin, purchasing over 78,000 BTC. American venture capitalist Tim Draper bought 29,656 BTC for $ 632 each at a US Marshal’s service auction. Barry Silbert, founder and CEO of Digital Currency Group, participated in the same auction and acquired 48,000 BTC.

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

Satoshi Nakamoto: The mysterious and unknown creator of Bitcoin deserves a category of his own. Satoshi is estimated to have over 1 million BTC. While there is no single wallet with 1 million BTC, using on-chain data shows that of the first approximately 1.8 million BTC created for the first time, 63% was never spent, making Satoshi a multi-billionaire. .

Centralization in the decentralized world

Critics of the crypto ecosystem claim that whales make this space centralized, perhaps even more centralized than traditional financial markets. A Bloomberg report claimed that 2% of accounts controlled over 95% of Bitcoin. Estimates claim that the richest 1% in the world controls 50% of global wealth, which means that wealth inequality in Bitcoin is more prevalent than in traditional financial systems – an accusation that shatters the notion that Bitcoin can potentially breaking centralized hegemonies.

The accusation of centralization in the Bitcoin ecosystem has dire consequences that can potentially make the cryptocurrency market easily manipulated.

However, Glassnode’s insights show that these numbers seem exaggerated and do not take into account the nature of the addresses. There may be some degree of centralization, but it may be a function of the free market. 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.

The “sales wall”

Sometimes, a whale places a huge order to sell a large chunk of their Bitcoin. They keep the price lower than other sell orders. This causes volatility, resulting in a general drop in Bitcoin’s real-time prices. This is followed by a chain reaction where people panic and start selling their Bitcoins for a cheaper price.

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

The opposite of this tactic is known as the Fear of Losing, or FOMO tactic. This is when whales exert massive buying pressure on the market at higher prices than current demand, which forces bidders to raise the price of their bids in order to sell orders and fulfill buy orders. However, this tactic requires significant amounts of capital that are not needed to break down a sales wall.

Observing the selling and buying patterns of whales can sometimes be a good indicator of price movements. There are websites like Whalemap dedicated to tracking every whale metric and Twitter handle like Whale Alert, which has been a guide for Twitter users around the world to keep abreast of whale movements.

When a whale takes a dip

Sixty-four of the top 100 addresses have not yet withdrawn or transferred any Bitcoins, showing that the biggest whales could be the biggest hodlers in the ecosystem, apparently due to the profitability of their investment.

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

Even in 2022, one of the most bearish years in Bitcoin history, foreign exchange balances fell, showing that most HODLers are stocking up on Bitcoin. Most savvy cryptocurrency investors refrain from holding their long-term Bitcoin investments in exchanges, using cold wallets to hold back.

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

“Most whales have seen multiple Bitcoin market cycles to have the patience to wait for the next one. In the Bitcoin ecosystem now, whale faith is strengthened by the macroeconomics of inflation and, more recently, by the correlation with stock markets. Whale wallet chain data shows that most of them are hodlers. Those who came during this market cycle did not make a profit to sell. There is no reason to believe that whales will abandon the Bitcoin ship, especially when there is economic fear of an impending recession. “

Kabir’s point on macroeconomics and stock market correlation can be seen in the chart below, which shows that since the last market cycle in early 2018, Bitcoin has closely followed traditional investment assets.

The bright side of 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 correlation of 0.6 Pearson with the S&P 500 in no way means a hedge against traditional markets. Other experts within the crypto ecosystem also appear to be frustrated with this trend.

A broader macroeconomics could be an important reason for the correlation between stocks and Bitcoin. The past two years have seen unprecedented inflows of funds to equity markets in history. There are theories that in a stretched bear market or in terms of financial catastrophes, the correlation with the stock market could break.

What does it mean when a whale sells?

Although, just looking at the on-chain data from the past three months shows that the number of whale wallets has dropped by nearly 10%. However, there has been a corresponding increase in the portfolios they hold from 1 BTC to 1,000 BTC. The whales appear to devalue their positions and major retail investors have piled up in turn, providing liquidity to the whales. The historical trend shows that whenever this occurs, there will be a short-term decrease in Bitcoin prices which will eventually lead to whales accumulating more aggressively.

Asked about the most recent whale sale, Seth said:

“It is almost inevitable that there will be a period of a few weeks when the whales will start selling. This is the mechanics of market movements. Currently, Bitcoin’s broader market sentiment is that the fund is in. There are sentiment analysis tools to confirm this. Some whales may play against this trend, in turn creating a bigger panic in the market. If there is a strong sell-off now, Bitcoin prices could rise as retail support stops. Only the whales will have the liquidity to accumulate then. “

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