The term 'whale' refers to an investor with deep pockets who can move the market by buying or selling in large volumes. Given the relatively modest market caps of crypto assets compared to other sectors, the movements of crypto whales can provide importantprice signals to alert investors
The term ‘Whale’ comes from the traditional financial markets and refers to a trader with a significant amount of capital. Due to the large size of a whale trader’s position, whale traders can influence markets to move in either direction when they make large buy or sell orders.
The current crypto market cap is around $1.6 trillion. This sounds like a lot but it is still small compared to the total US stockmarket capitalization of over 50 trillion. Given this smallish market cap, a whale investor still has the ability to move the bitcoin price and that of other assets. This is especially true with smaller less liquid altcoins. Serious traders are aware of this and invest time and resources into following the actions of whales using block explorers to monitor the movements of large amounts of coins to and from exchanges.
Using the whale analogy, it can be useful to imagine the crypto market as an ocean. Small fish have little influence on the current and to survive they must swim in the same direction as the current. A whale can cause volatile stormy seas that wipe out the small fish.
Even if you’re not an altcoin trader, bitcoin whales have an outsized influence on the wider crypto markets which means it is important to keep up to date as new whales like Telsa and MicroStrategy enter the market.
Who are the ‘Bitcoin Whales’?
Telsa and MicroStrategy are the newest Bitcoin whales and the two largest examples of a new phenomenon of bitcoin being the central part of a ‘corporate treasury’ strategy. When Tesla announced its $1.5 billion bitcoin purchase in early February the bitcoin price hit a new all-time high on the news, soaring 15% to USD $44,000.
Telsa’s move followed MicroStrategy’s series of large bitcoin buys which since August 2020 has seen the company spend over $2.1 billion buying Bitcoin. The price of Bitcoin rose from around 11,000 at the time of Microstrategy’s first purchase, to $53,000 today. It is likely that many more ‘corporate’ entities will follow Tesla and MicroStrategy’s lead and become Bitcoin whales in 2021. This week, for example, Norwegian company Aker established a division to buy Bitcoin – and funded it with $58 million. At the same time Chinese company Meitu purchased $40 million of Bitcoin and Ethereum.
Whales can also be risk-loving high-net-worth individuals who have entered the cryptocurrency market as a new arena for money-making, or major institutional investors such as hedge funds and proprietary trading desks who are placing large bets on where the market will move next. In the past, whales were most likely early Bitcoin evangelists like Roger Ver and the Winklevoss twins. In April 2013 the Winklevoss twins announced that they owned almost 1% of the existing Bitcoin supply. They are thought to own approximately 170,000 Bitcoins.
How do whales trade Bitcoin?
Initially, bitcoin whales traded on the largest and most liquid bitcoin exchanges, and many still do. However, as the digital asset market has matured, OTC brokers have launched to service large bitcoin investors who are trading digital currencies over the counter to preserve their anonymity and to be able to access more liquidity than exchanges can provide.
OTC brokers such as Cumberland and Circle have a minimum ticket size of $100,000 and $250,000 for digital currency trades, which means that wealthy Bitcoin holders can trade amongst each other without trades ever touching exchanges. In some cases, OTC brokers will source liquidity from different exchanges to close out trades and reduce the impact of a large sell or buy transaction on the overall market.
Some of the larger Bitcoin exchanges including Kraken, Gemini, and Coinbase have also opened dedicated OTC desks and clearinghouses to serve whale-sized accounts. At the same time, others look for the best day trading platform to buy their crypto.
MicroStrategy’s bitcoin buying tactics
When it first started buying Bitcoin in 2020, MicroStrategy was concious of its ability to move the market and has been remarkedly transparent about the tactics it applied to not push the price higher while it was making its buys.
In a press release, MicroStrategy said it had purchased 21,454 BTC for $250 million. Crucially, to ensure the large purchase did not have an outsized effect on the market, the firm adopted a macro buy strategy buying small amounts in thousands of trades.
"To acquire 16,796 BTC (disclosed 9/14/20), we traded continuously 74 hours, executing 88,617 trades ~0.19 BTC each 3 seconds," tweeted MicroStrategy CEO Michael Saylor. That means a purchase of approximately "$39,414 in BTC per minute, but at all times we were ready to purchase $30-50 million in a few seconds if we got lucky with a 1-2% downward spike," he said.
The company’s purchases have continued and it currently holds 90,859 BTC. Saylor has strong convictions about the future price appreciation of Bitcoin – so it is unlikely that this investment represents a potential sell event in the near term.
How to identify crypto whales in action
Where the impact of whales can be felt the most is in the altcoin market. In crypto assets with market capitalizations of less than $100 million, the market will move substantially if a significant holder decides to sell part of their portfolio, or if a large buyer comes in.
Therefore, it is important to be aware of the wealth distribution of smaller altcoins before you invest in them and to keep a close eye on order books to see whether there are any whales.
While “whale watching” has become more difficult due to the increase in OTC brokers who now handle a substantial volume of digital asset trades, whale watching is a worthy pursuit for traders or those who have substantial amounts invested in crypto assets – as these investors have the potential to affect the value of your portfolio.
To identify whales, the first thing you can do is monitor the wallet addresses of the largest holders — as well as exchange wallets — to stay alert of any significant shifts in cryptocurrency.
Source: Bitinfocharts.com
When wealthy bitcoin investor Roger Ver sent 25,000 BTC (worth $159 million) to Bitfinex on November 12, 2017, many investors were spooked, fearing that he was about to sell his holdings. While $159 million may not sound like much when trading blue-chip stocks, in a market with a capitalization of $100 billion (at the time), selling $159 million worth of bitcoin in one go would have driven the price down. The market corrected that day in anticipation of this possible sell trade.
Another example of a whale selling a large number of coins putting downward pressure on the price is the infamous slaying of the bear whale event from 2014. On October 5th, 2014, after months of negative press over the need for bigger Bitcoin blocks, the individual known as the Bear Whale lost faith in Bitcoin and transferred 30,000 coins to Bitstamp. The following morning, he placed a sell limit order for $300 per coin. “I could have gotten a better price if I spent more time working the order I guess,” he told Reddit. “I put up the wall because I didn’t want to just sit in front of the computer all day.”
At a market price of around $350 that morning, such a large sale on Bitstamp risked taking prices back to 2010 levels. Incredibly, soon after the “attack” on bitcoin’s price started, the community rallied to buy up all of his coins and maintain the market value. After six hours of constant selling, the price jumped back up. The BearWhale had been “slain” – an event much-celebrated by Bitcoin traders ever since. A video of the exchange order books during the event can be seen on YouTube.
Another way to spot whales in action is to monitor order books. If you suddenly witness larger-than-normal buy orders, there may be a whale in play. The same, of course, goes for larger-than-usual sell orders. However, when it comes to buy walls and sell walls, it is important to note that they can also be a form of market manipulation if the investors cancel the orders shortly after having given the market the impression a large buyer or seller was in play.
You can also detect whales if there is a change in market capitalization in a particular cryptocurrency that is not tied to any major project announcement or market-moving news. The same goes for a seemingly unexplainable increase in volatility or price spikes in a specific coin. This could mean that a whale has entered this market.
While some members of the cryptocurrency community like to demonize whales as culprits of major price drops and market manipulation, the reality is that in all financial markets there are whales that can influence the price. The “London whale” showed us that in 2012.
As more institutional investors and high conviction whales like Tesla and MicroStrategy enter the crypto asset market, the number of whales will increase and larger order sizes, as well as trading volumes, will become the norm as the asset class matures to accommodate the new players. Over time, this will likely lead to a reduction in volatility.
