A crypto whale refers to a blockchain address that holds vast amounts of cryptocurrencies. While the cut-off point differs for each blockchain network, crypto whales typically hold a significant percentage of a cryptocurrency in circulation.
Introducing Crypto Whale
Crypto whales are wallets holding large amounts of cryptocurrency. They are called crypto whales because they are fairly big compared to other fish in the crypto ocean, and they can make big splashes. Regarding the identity of crypto whales, it’s only possible to know the blockchain address that holds and uses the funds, not the individual, group, or corporate entity that holds the key to the address.
Moving around vast quantities of cryptocurrencies result in fluctuations in the market valuation of a cryptocurrency. How big crypto whales can get and how much effect they can create differ widely across different cryptocurrencies.
For example, as of November 2022, 4 wallets own 3.56% of all Bitcoin, which amounts to 683,712 BTC equaling $13,778,147,755. A crypto whale looks poles apart in Dogecoin. A single wallet holds 28.3% of all Dogecoin, amounting to 38,708,331,801 DOGE and $4,972,916,459 in value. Crypto Whales are closely monitored by investors through Crypro whale Alert websites which report any transaction to 100 wallets to make in a blockchain, on places like Twitter or discussion forums.
This guide explains how crypto whales make a splash, and what it means for the smaller fish.
How Do Whales Manipulate the Crypto Markets?
More than anything, crypto whales can have significant changes in cryptocurrencies in monetary value, but they may also affect them structurally.
Creating “Sell Walls” and “Buy Walls”
Crypto whales, or a pod of whales, may artificially increase and decrease the value of a cryptocurrency by creating sell and buy walls, which essentially refers to a ripple effect influencing the whole cryptocurrency network.
A sell wall happens when a large owner puts up a massive sell order for a huge chunk of their assets and keeps the price lower than other sell orders. Everyone else then will reduce the price for their assets below what the crypto whales sell order specified.
This results in a general reduction in the prices of the coins. Investors typically watch for signs of crypto whales dumping their assets to reap the benefits. Yet, crypto whales can cancel the sell order before it's finished, and repurchase the coins at a lower price.
A buy wall, on the other hand, inflates the price of coins by putting in large buy orders. Big orders end up increasing the price required to execute the orders and result in other buyers increasing their buying orders as well.
Increasing market prices often trigger FOMO, fear of missing out, on a huge deal. This attracts more investors, which in turn drives the price even higher. Whales then may cancel their buy orders before all purchasing is finished and end up having higher value on their existing assets.
Impact on Liquidity
The concentration of wealth may cause problems in terms of liquidity across cryptocurrencies. If wallets with large quantities of cryptocurrencies are not active, not trading, and simply just sitting on wealth, it means that they are blocking a huge chunk and subsequently decreasing liquidity.
As more investors compete for few number of coins that are still available, this can lead to higher prices during periods of increased demand. If a crypto whale decides to flood the cryptocurrency market by selling off a lot of coins, this might potentially have a detrimental impact on the value of a digital currency and have impact on the market
High liquidity allows quick and easy swaps and conversions between assets. Low liquidity means it is quite difficult for crypto traders to trade or swap their cryptocurrencies with other coins or fiat currencies.
Other Implications
Movements of whales would normally cause huge network congestions — but most of the big players don’t use conventional cryptocurrency markets to move crypto around, because the sheer size of their order can overwhelm the network. Instead, they use Over the Counter (OTC), or off-crypto exchanges trading.
What is concerning though, whales hold great power in blockchains using a proof-of-stake mechanism. In such networks, participants who stake get to become validators who are responsible for creating and adding blocks to the chain, and vote on the validity of the blocks.
More coins at stake mean more voting power, and whales can have huge amounts at stake. Which have a positive outcome, as it endows the network with a form of stability as whales are incentivized to act in the good interests of the blockchain to reap the benefits of a growing network and value. On the other hand, it also constitutes a way to centralization of power on a few individuals.
Crypto Whale Watching: Yay or Nay?
Even when whales don’t make use of semi-malicious tactics as such, they still hold a disproportionate amount of cryptocurrency in their wallets and by extension, the power to disrupt the crypto market by selling and buying large amounts.
For short-term traders, it is generally advised to watch the movement of the whales both for a chance to profit from it or avoid getting drowned. While some whales like to make big splashes, some may decide to sell or buy assets in small doses over an extended period of time. So it's wise not only to track the value of transactions but the frequency and general pattern.
While it's useful to remember that cryptocurrencies with large market caps, like Bitcoin, usually react in the direction of major trends when whales begin to move around, it's crucial to keep it cool and not panic, and monitoring allows investors to assess the movements rationally.
Will Whales Ever Surface?
Crypto whale manipulation is prohibited in many regulated markets. Agents who attempt to artificially increase and decrease the value of an particular asset are monitored and penalized if detected. But cryptocurrencies are not regulated by governments or other regulatory bodies at all — which is one of the reasons why we love them. But, as seen here, it also makes them vulnerable to exploitation as such.
Whales are also more influential in smaller markets. Shiba, for example, experienced a dramatic surge in value with crypto market capitalization reaching $20 billion in October 2021, which analysts attributed to only 8 wallets, which held over 70% of all coins at the time.
By the end of the month, these wallets enjoyed an 800% return on investment. See, Shiba, a Dogecoin spin-off, is a much smaller network in comparison with a smaller number of participants and coins in circulation. The larger a market gets, the harder for whales to gain meaningful influence.
