What’s behind the Whale (Fairy) Tale?

Crypto whales get accused of market manipulation and dirty tactics. While that might be true for a small percentage of crypto whales, the idea that the entire market is driven by malicious actors seems more like fearmongering.

Whales are the biggest animals in the sea. They eat whatever swims around in the ocean; fish, shrimp, plankton, crabs, krill, squid and even larger marine mammals.

In crypto terminology, “whales” are single investors, or groups of investors, who have enough coins to manipulate the market. Thus, crypto whales can use their wealth to feed off the markets by eating up smaller investors. Just like whales eat smaller fish.

Price manipulation tactics

Crypto whales can cause market prices to drop or rise within minutes by dumping a huge amount of coins at once. There are several ways how they can take advantage of their volume.

Rinse and repeat

One or several whales can decide to sell all their coins at the same moment. This would cause a sudden price drop and other investors might start panic-selling. The whales watch and rebuy their coins at a lower price. They could then repeat this process and further increase their profits.

Sell walls

Whales can build sell walls by placing huge sell orders of a particular coin. Such an order would have to be massive compared to the coin circulation. If other prices had hundreds or thousands of sell orders, a whale would have to place a sell order of millions of coins at a certain price in order to create a sell wall.

As the order is so massive that the market cannot find enough buyers to complete it, it will hang in there for a while. “Weak hands” will get anxious and place sell orders slightly below the sell wall-price to get rid of their coins.

Once prices are where the whale wants them to be, the whale buys the coins at the lower prices and cancels his sell order.

While this strategy can work, in reality, sell walls are a high-risk proposition. It only works if there is not enough demand to eat the wall. As the old saying goes, “size attracts size,” meaning a hidden whale might turn up and lift the entire wall in the blink of an eye.

Buy walls

Buy walls work the same way as sell walls, just in the opposite direction.

The whale would put up a massive buy order at a price above the current market price. Anyone who wants to buy would then have to buy at a higher price.

This could cause FOMO amongst smaller investors and drive up prices. Once the price is high enough, the whale would sell his coins and cash in.

What can you do when you spot a whale?

Do you have a harpoon? Unless you are a crypto whale yourself, you don’t.

So just keep whale-watching. Relax. If you see a sudden and unjustified price drop, don’t panic sell your coins. Prices will recover.

Not all crypto whales are sharks

Crypto whales have gotten a bad reputation for being market manipulators.

And while that might be true for some whales, it’s a broad and unjustified generalization to presume that all of them are solely focused on market manipulation.

Whales are usually friendly animals. A lot of them are simply early stage crypto investors and miners who have been in the game from the early beginnings. They had become rich through Bitcoin mining and are now trying to maintain their wealth, but don’t have their sights set on dirty tactics.

What’s behind the whale (fairy) tale

It’s not clear how powerful whales really are and what impact they have on prices. But there surely is a great deal of fearmongering and misinformation involved.

A study by the crypto forensics firm Chainalysis examined the 32 biggest Bitcoin whales. Together, they hold about 1 million of the approximately 17 million bitcoins mined to date. That’s just 6% of the total market, and the figure drops to 4.6% when lost bitcoins are taken into account.

More interestingly, the study looked at the trading behavior of these 32 whales. Most of them tend to hold their bitcoins for the long run, so they are not regularly active in the market. And when they are, they tend to be Bitcoin buyers rather than sellers.

Also, Chainalysis found no evidence that Bitcoin whales are acting in concert.

According to this study, whales don’t seem to be that important in the Bitcoin market and they don’t seem to behave maliciously. Quite the opposite, they tend to behave in ways that supports the long-term value of the currency.

That said, Chainalysis only looked at the Bitcoin network. Smaller networks are more prone to market manipulations, due to the lack of liquidity.

The future of the crypto whale population

Price manipulation tactics can be observed in every market, but they are illegal in regulated markets. Thus, the more crypto markets move into the mainstream, the more likely it is that the Sheriff will eventually put his foot down. That’s where the whale (fairy) tale will end.

Also, with more regulation and more sophisticated infrastructure in place, institutional investors will eventually enter the market.

That won’t happen tomorrow. But once it does, there will be some mega-whales jumping into the pool. The massive inflow of liquidity will finally degrade the current crypto whale population to crypto dolphins, maybe even crypto goldfish.

And remember: Whales might be the biggest animals in the ocean, but most whale species are listed as endangered. So how dangerous can they be?

 

Are you interested in more? –> Then have a look at this article >Crypto Bubble or not?<

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