What Are Whales and How Do They Manipulate Cryptocurrency?

What Are Whales and How Do They Manipulate Cryptocurrency

Whales in cryptocurrency create waves that cause a ripple effect among small fishes, or traders, thus influencing the overall market.

Between October and November 2021, the cryptocurrency Shiba Inu (SHIB) witnessed a surge, reaching a market capitalization of over US$20 billion. Researchers found that one of the most significant contributors to this surge were “whales”—eight of them, to be precise. As per their report, these whales controlled 70.52% of the token, with one of them controlling over 40%. In the last week of October, the whales enjoyed returns of nearly 800% on their investments.

Crypto whales are becoming a common sight in the cryptocurrency world, especially when it comes to Bitcoin. In 2017, a single Bitcoin whale caused the price to surge to a record high of US$20,000 per token. Additionally, in October 2020, a user moved over US$1.1 billion of the cryptocurrency, making it one of the largest Bitcoin transactions to date. While these instances aren’t too unusual, what is interesting is that these transactions have been happening more frequently in recent weeks.

Whales usher in profits for themselves while influencing how other investors trade cryptocurrencies. That’s why it’s important to keep ‌track of what these whales are up to.

But first, what exactly are whales?

Whales are entities—individuals, institutions and exchanges—that hold significant amounts of tokens of a particular cryptocurrency. For instance, when it comes to Bitcoin, a whale is an account that holds 1,000 Bitcoins or more. Some examples of well-known whales include Pantera Capital and Fortress Investment Group. Another popular—yet widely speculated—whale is Satoshi Nakamoto, who is said to have mined over a million Bitcoins.

How do whales manipulate cryptocurrency?

In February 2021, the cryptocurrency Ether’s value fell from US$1,628 to US$700 for a minute on the crypto exchange Kraken. While various factors could have contributed to it, Kraken CEO Jesse Powell felt that it was a single whale that “decided to dump his life savings”, thus resulting in the plunge. Because whales hold so much cryptocurrency, their movements can manipulate the token’s value in massive ways. Additionally, given that they have more funds at stake, they possess more voting power

There are largely two ways in which whales manipulate cryptocurrency:

They can create a “sell wall” effect

Sometimes, a whale puts up a massive order to sell a huge chunk of their crypto tokens. They keep the price lower than other sell orders. That causes volatility, resulting in the general reduction of prices of the cryptocurrency coins. This is followed by a chain reaction where people panic and start selling their tokens at a cheaper price too. Thanks to that, whales are able to buy more coins at a lower price, thus achieving more power. 

They can capitalize on the fear of missing out (FOMO)

Contrary to the “sell wall” effect, whales often artificially inflate the prices of the tokens by putting in huge buy orders. They create a desire for the cryptocurrency tokens, thus urging people to raise their bids. In doing so, they also catch the attention of other investors who fear missing out on a great, profitable deal. Investors feel that as the demand for the token has gone up, they should also get a piece of it. This way, whales are able to sell some of their tokens for a decent profit. 

In essence, whales create a ripple effect that impacts the other investors of a token. By increasing and decreasing prices, they are able to manipulate the market in their favor. As crypto traders, you must give due attention to the movement of whales. You can do so by engaging in a blockchain analysis to keep track of accounts with a high valuation of crypto tokens, following whale alerts on Twitter and other social media platforms as well as subscribing to analytics platforms that keep a watch on crypto prices on your behalf. Many factors contribute to the volatility of cryptocurrency. Whales are a significant element. To make sure you are trading profitably, make sure you factor whales into your buying and selling decisions. 

Header Image by Flickr

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