How do the bitcoin whales position themselves on the markets and move prices?

How do the bitcoin whales position themselves on the markets and move prices?

Taking their name from the size of these giant mammals that swim the world’s oceans, cryptocurrency whales refer to people or entities that hold large amounts of cryptocurrencies.

In the case of bitcoin (BTC), a person can be considered a whale if they hold more than 1,000 BTC, and less than 2,500. Since Bitcoin addresses are pseudonymous, it is very difficult to determine who owns a wallet.

While many associate the term “whale” with some lucky early adopters of bitcoin, not all whales are the same. There are several different categories:

Stock exchanges or exchanges: Since the widespread adoption of cryptocurrencies, cryptocurrency exchanges have emerged as some of the largest whale wallets, as they hold large amounts of cryptocurrencies in their order books.

Institutions and companies: Under the leadership of Michael Saylor, software company MicroStrategy has over 130,000 BTC. Other publicly traded companies, such as Square and Tesla, have also bought large sums of bitcoins. Countries like El Salvador have also bought a significant amount of bitcoins to increase their liquidity reserves. There are custodians like Greyscale that hold bitcoins on behalf of large investors.

The details: Many whales bought bitcoins very early on, when their price was much lower than today. Gemini currency exchange founders Cameron and Tyler Winklevoss invested $11 million in bitcoin in 2013 at $141 a coin, buying more than 78,000 BTC. US venture capitalist Tim Draper bought 29,656 BTC for $632 each in an auction organized by the US Marshals Service. Digital Currency Group founder and CEO Barry Silbert participated in the same auction and received 48,000 BTC.

Returned BTC: Currently, more than 236,000 BTC are wrapped in the ERC-20 Bitcoin Wrapped (wBTC) token. These wBTCs are mostly held by custodians who maintain 1:1 parity with bitcoin.

Satoshi Nakamoto: Bitcoin’s mysterious and unknown creator deserves a category of its own. It is estimated that Satoshi may hold more than a million BTC. Although there is no single wallet with 1 million BTC, using chain data shows that of the approximately 1.8 million BTC initially created, 63% was never spent, making Satoshi a multi-billionaire.

Centralization in a decentralized world

Critics of the cryptocurrency ecosystem say that whales are making this space centralized, perhaps even more centralized than traditional financial markets. A Bloomberg report claims that 2% of accounts control more than 95% of bitcoin. The richest 1% in the world control about 50% of global wealth, which means that wealth inequality in bitcoin is more widespread than in traditional financial systems: a charge that breaks the idea that bitcoin has the ability to break centralized hegemonies down.

The accusation of centralization in the Bitcoin ecosystem has serious consequences that could easily manipulate the cryptocurrency market.

However, information provided by Glassnode shows that these figures appear to be exaggerated and do not take into account the nature of the addresses. There may be some centralization involved, but that may be a function of free markets. Especially when there is no regulation of the market and a few bitcoin whales understand more than the average individual investor, this centralization is bound to happen.

The “sold wall”

Sometimes a whale places a huge order to sell a large amount of their bitcoins. It keeps the price lower than other sell orders. This causes volatility, leading to a general drop in real-time bitcoin prices. A chain reaction occurs when people panic and start selling their bitcoins at a lower price.

The price of BTC will stabilize only when the whale withdraws its large sell orders. So the price is now where the whales want it to be so they can accumulate more coins at the price they want. The tactic thus described is called a “sales wall”.

The opposite of this tactic is called “Fear of Missing Out” or “FOMO”. This is when whales put significant buying pressure on the market at prices above current demand, causing bidders to raise their bid prices to fill their sell orders and buy orders. However, this tactic requires significant capital that is not necessary to reach a selling wall.

Sometimes looking at buying and selling whale patterns is a good indicator of price movements. There are websites like Whalemap, dedicated to tracking all whale parameters, and Twitter accounts like Whale Alert, which has been a guide for Twitter users around the world to keep up to date with whale movements. .

When talking to a whale

Sixty-four of the top 100 addresses have yet to withdraw or transfer bitcoins, indicating that the largest whales may be the largest planes in the ecosystem, apparently due to the profitability of their investment.

The chart above clearly shows that whales generally remain profitable. Based on a 30-day moving average, whales have remained profitable for more than 70% of the time over the past decade. In many ways, their confidence in bitcoin is what cements the price action. Being profitable (month after month in this case) for most of their investment period helps build their belief in the hodl strategy.

Even in 2022, one of the most bearish years in bitcoin history, exchange balances declined, indicating that most HODLers are hoarding bitcoin. Most seasoned cryptocurrency investors shy away from keeping their long-term Bitcoin investments on exchanges, using a cold wallet for hodling.

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

“Most whales have seen several bitcoin market cycles to have the patience to wait for the next one. In the Bitcoin ecosystem now, the belief of whales is reinforced by the macroeconomics of inflation and more recently, the correlation with the stock markets. Data on a chain from a whale’s purse indicates 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 Bitcoin ship, especially when there are economic fears of an impending recession.”

Kabir’s take on the macro economy and the correlation with the stock market can be seen in the chart below, which shows that since the last market cycle in early 2018, bitcoin has closely tracked traditional investment assets.

The bright side of this trend is that bitcoin has entered the mainstream in terms of consumer sentiment, which has changed its reputation as a fringe asset. On the other hand, a 0.6 Pearson correlation with the S&P 500 in no way means hedging against the traditional markets. Other experts in the cryptocurrency ecosystem seem to share this trend as well.

The correlation with the stock markets is boring. — Michael van de Poppe (@CryptoMichNL) June 7, 2022

A larger macro economy could be an important reason for the correlation between stocks and bitcoin. The past two years have seen an inflow of funds unprecedented in the history of the stock markets. According to some theories, in a long bear market or in the event of a financial disaster, the correlation with the stock market could break down.

What is the meaning of selling a whale?

Although, looking at the data on the chain for the last three months, we can see that the number of whale wallets has decreased by almost 10%. However, there is a corresponding increase in wallets holding from 1 BTC to 1,000 BTC. It appears that the whales are putting out their jobs and large individual investors are depositing in turn, providing liquidity to the whales. The historical trend shows that whenever this happens, there is a short-term drop in bitcoin prices that causes whales to start accumulating aggressively.

When asked about the recent culling of whales, Seth said:

“It is almost inevitable that there will be a period of several weeks when the whales start to sell. This is the mechanics of market movements. Currently, the general perception in the bitcoin market is that the bottom has been reached. There are sentiment analysis tools that confirm this. Some whales could play against this trend, causing more panic in the market. If there is a selloff now, bitcoin prices may fall because retail support will be broken. Only the whales will have the money to accumulate there. »

The market can learn from the statement of Kabir and the whales that the future of bitcoin is worth betting on. In the short term, emotions can be manipulated and prices can be influenced. However, in the long run, when the dust settles, the hodlers will prevail.

Bitcoin (BTC) and its projects develop in Africa

Bitcoin (BTC) and its projects develop in Africa

Solana (SOL) Struggling to $40 - Is A New Trend Starting Now?

Solana (SOL) Struggling to $40 – Is A New Trend Starting Now?