Cryptocurrency Whales: How large investors manipulate the price of cryptocurrencies

If you have been in the cryptocurrency market for some time, you have surely heard of cryptocurrency whales.

Imagine the cryptocurrency market as if it was the sea. There are fish of all sizes. There are small fish, which only have a few coins, as well as medium and large fish. Regardless of their size, all fish swim to maximize their profits.

One small fish cannot change market trends. It would require large schools to do so. If all fish swim to the same point, for example, if everyone is buying Bitcoins, the sea would move, and the trend would be a rise in the price. Demand would increase, and as a result BTC would become more scarce. Therefore, investors would need to pay more. However, if half of the fish go in one direction and the other half goes in another, the value of the cryptocurrency would remain stable.

But, whales are different. In cryptocurrency jargon, whales are investors who have huge amounts of cryptocurrencies in their portfolios, either Bitcoin or altcoins. For this reason, the joint movement of a small group of whales is capable of altering the cryptocurrency market supply and demand.

That’s not all. There are a few ways whales can use tactics to manipulate the market and obtain high profits in a few minutes.

We will discuss who whales are and how they are able to manipulate the market.

Who are the Cryptocurrency Whales?

In general terms, whales are former cryptocurrency investors (the early-adopters). They managed to gather large fortunes in cryptocurrencies during their first years. 

In the case of Bitcoin, it is investors who collected their coins when they were worth a few cents per unit, buying them or through mining.

Recently, the gigantic cryptocurrency value increase has allowed the emergence of a small elite group of crypto millionaires. In that sense, the Bitcoin Rich List data is revealing:

  • About 97.3% of Bitcoin wallets have between 0 and 1 BTC;
  • Approximately 2.64% have between 1 and 100 BTC;
  • Whales are in the remaining 0.06%, they have more than 100 Bitcoins. Among them, 3 wallets have between 100 thousand and 1 million BTCs. Wow!

In this sense, we can characterize the Bitcoin market as very centralized. This 0.06% has great power over the supply and demand of cryptocurrencies at any given time.

However, in the case of altcoins, this centralization can be even larger. It is not uncommon that a significant part of the tokens belongs to the original currency developers, or that large investors have bought a significant part of the currencies as a high-risk investment during the ICO (Initial Coin Offer).

Cryptocurrency whales and market manipulation

In the traditional stock market, which is regulated by government authorities, market manipulation is subject to specific laws. Depending on the country, activities such as the dissemination of false news and the creation of fictitious purchase and sale orders can be considered crimes.

However, the cryptocurrency market is not regulated. If it is compared to other economic activities it is relatively small. Due to this, a few actors are able to significantly change market prices and have no legal repercussions.

For this reason, market manipulation practices are occasionally implemented. These are some of the most common practices:

Rinse and Repeat

This practice works as follows:

  • A whale creates a huge cryptocurrency sale order below market price;
  • Suddenly, the market is flooded with cheap crypto. Soon after, the trend indicates a sharp fall in prices;
  • As prices are low, the whale acts again simply re buying its coins;
  • In this way, the currency price recovers its value. While the whale gets big profits.

This practice can be extremely profitable for large investors if it is done at the right time. In a recent article, Cointelegraph explains how a whale was able to earn more than $10 million in less than 5 minutes through a similar operation.

Fake Walls

Investors place buy and sell orders on exchange platforms. When a seller finds a buyer who accepts their price, the transaction is made.

Whales create huge buy or sell orders, building a “wall” that causes the price to rise or fall. However, right after that the whale simply cancels the order. Here is an example:

  • A whale creates a huge buy order for cryptocurrency X for $10.
  • Assuming this is a sudden increase in the demand for cryptocurrencies, other investors increase their buy orders even more, for example, to $15.
  • Then, the whale cancels its purchase order. But, it changes its role and acts as a seller of cryptocurrency X, which unit is now worth $15. The whale benefits from this strategy!

The opposite example is also possible: a whale creates a sales wall to lower a coin price, later on, it buys it for a low price.

But, let’s take it easy!  Pay Walls are not always created by whales. They often reflect the most general market trends.

Conclusion: learn to swim with the whales!

Whales are the main players on the market. In this sense, it is important to consider your actions when deciding the best way to invest. If it is possible, swim with them.

Very sudden movements in prices are usually caused by a large cryptocurrency whale and its actions. Therefore, it is important to avoid panic in this type of situation. A site like Whale Alert analyzes large transactions 24/7 and can be useful for understanding some sudden variations.

It is important to understand that whales can only move the market in a direction for a limited amount of time. They are not able to generate medium or long-term trends.

In recent years, the appreciation of crypto prices is mainly due to the adoption of its technology, and the arrival of small and large investors to the market. This despite short-term price fluctuations. In that sense, investment in crypto remains promising.

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