Crypto whales – who is it and how does it affect the market?

The crypto industry has a lot of its slang. Very often we hear the word «crypto whale». As you might have guessed, that’s what a large holder of digital assets is called. Because whales have a lot of coins, they have different theories. In this article we will discuss them in more detail. 

Whales are called whales for a reason: when a sea whale comes out of the water and dives back, it emits waves that affect other marine objects or creatures. The analogy is also made with size and weight – whales are large and holders of a large number of cryptocurrencies are also «large». And if the «whale» is going to sell all its savings, it will certainly affect the price of this asset. 

Let us give an example: suppose the market price of Bitcoin is $40,000. Our whale has at its disposal 100,000 BTC, which is $4 billion in capital money. The amount is not small, even for Bitcoin, which has a capitalization of about $750 billion. If a whale creates a trading order with all the assets, there are two possible scenarios:

  1. If there is another whale on the market, it can buy the entire lot, then the market influence will be minimal. This will be the most favorable outcome.
  2. As we have already calculated, it will take $4 billion to purchase the entire asset – a sum that not everyone can afford. Almost all market participants cannot afford this amount of asset. However, this sales request is displayed in a glass of orders that is available to any user of the exchange. Seeing such an order, small holders of an asset only sell for less than a whale order. This encourages other holders to be put on the market as the price of the asset declines rapidly. 

It even has a name – a sales spiral and it works like this:

There’s an event in the market that’s encouraging a major investor to divest. Since investors are large, the asset is large, which means its sale will not be invisible to other market participants. The price starts to go down and smaller investors see it. They pick up the wave, and they start selling. Next begins a series of liquidations of those market participants who do not have a strong reserve of deposit and collateral in position is lacking. After that, they sell to those who want to keep some profit. Then a bigger wave of liquidations from the big players. You get a chain reaction, or you get a sales spiral where everyone starts selling because someone started selling before them. This event could bring down the price of an asset in a matter of hours.

As a result of everything written above, there may be a sense that whales do affect the crypto market. But let us look at the question in more detail: Is that true? As a rule, if a large holder of an asset wants to get rid of it, or wants to buy it, it will use over-the-counter platforms – OTC. The purpose of these facilities is precisely to ensure that large investors buy or sell the right assets and that information is hidden from the rest of the market. So why is it preferable for whales to use OTC sites? We have already found that if a major investor wants to buy an asset, the amount will be large, so it is not likely to be a single lot. If an investor buys the right amount of an asset in instalments, it can increase its price itself, because supply in the market will fall and demand will remain at the same level. On the other hand, if a large amount of the asset is sold, the situation we have described above – the sale spiral – can occur. It turns out that in the first case, the whale can spend more money than originally planned, and in the second case, sell the asset cheaper than it could through OTC. 

But we’re not going to prove to you that whales have no influence on the crypto market. Given the general volatility of the crypto market, whales may well be involved. A rudimentary example is the report that a stock exchange has been or has been given a large quantity of BTC, which can be considered by market participants as a bull or bear signal, followed by certain actions. 

Now let’s look at one known whale strategy that has long been known to Community Crypto:

  1. A large investor invests a large number of assets on the stock exchange, which is already causing some speculation among some market participants. The order for the sale of the entire quantity of the asset is then created, and the parameter that allows the buyer to buy back the entire asset is also set. The price is set just below the market to show the «serious attitude» to the market.
  2. Like all other applications, this one is found in a book or glass of orders, where it is seen by other market participants. Traders and investors understand that if this order is bought, it will almost certainly affect the asset price, for the worse, a big sale will start.
  3. Market participants begin to undervalue and sell assets. This may seem unlikely to affect the market, but there are many such traders. Thus, a panic sale reduces the price of an asset.
  4. And here, the whale begins to buy back the petty orders at a discount. As soon as a certain amount of asset is collected or offers are closed at an undervalued price, the large order is removed and the price stabilized.

This strategy implies playing on the human factor, because any market participant would not want to register a loss. The problem with this strategy is that whales are never alone in the market. In fact, his order with a large amount of assets could buy another whale, causing the first to lose. 

There are many other theories that are related to crypto whales. They are being actively discussed online, and individuals accuse large holders of having eliminated their positions. Of course, it’s the whale’s fault you lost your money, not the 100s Leverage.

We all know that becoming a whale isn’t so easy, it needs a lot of capital. If you are a regular market participant and trade in between, you should use RevenueBot. The service provides the possibility to create trading bots for trading on topical crypto exchanges. The bot is operated from cloud storage, so a permanently switched-on PC is not required. You can learn more about the service on the official website of RevenueBot.

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