Traditional Participants in the Crypto Sea

When dealing with cryptocurrency, you have probably heard of the terms whale and whale movements. However, it is a term borrowed from traditional finance, describing market participants with high networth in particular currencies which hold the power to sway the market in their desired direction. 

Whales are a concept that is usually found within stock markets. Traders that hold a significant amount of capital, hold also the power to move the market if they play their cards right.  

Traditional financial markets are not that different from crypto markets since many terms and theories that stem from traditional centralised finance have been borrowed by its crypto counterparts. Decentralised finance is about creating a substitute system for the current centralised one, but it doesn’t mean letting go of years and years of market-related studies.

The term is linked to market manipulation, a concept usually perceived in a negative way. Specifically, whales have always been portrayed badly in the media because they are able to, for example, push prices up and liquidate their holdings once the prices have reached their desired target. Everyone else is left with losses just by a few huge splashes in the financial markets. 

Such potent investors exist across all asset classes, yet cryptocurrencies are especially susceptible to this phenomenon. Aside from price swings, volatility splashes, and uncertainty, whales find it easier habituating in the crypto market as opposed to some other markets.

Within the crypto market, there are more whales, yet a lesser volume and lower liquidity across a fragmented sea of exchanges. When there is no adequate liquidity, crypto whales are trapped in a sort of small swimming pool where any splash makes huge waves through the market.

Let’s start by busting a few myths. Despite being portrayed as negative occurrences, whales are a part of the market’s ecosystem. Just as it is hard to imagine an ocean without whales, it is the same with markets.  

Also known as ‘market movers’ or ‘smart money’, whales can provide liquidity to the market. In case they make too many splashes, they can tank the market.

It is ok to be intimidated by them – their size and power can seem overwhelming. Before writing them off for being potentially scary and bad, it is wise to understand their movements. 

When it comes to stocks, you can think about them in two ways. The first one refers to the stocks’ intrinsic value that can be established by conducting a technical analysis. On the other side of the spectrum, we have their market price that stems from the laws of supply and demand. If everything is peaceful at the market, prices move based on intrinsic value.  

To understand any market, it is crucial to become familiar with basic financial terms such as supply and demand. If you want to find out more, we suggest reading our ‘When CeFi Meets DeFi: Basic Finance Terms’ guide.

For example, if a particular company exceeds consumers’ expectations and brings to the table new products or services, its intrinsic value should go up along with the stock price. When a whale is swimming through the market, the price usually keeps up with this pattern. 

As the demand for a stock rises rapidly by looking at data and relevant parameters, other investors will start joining the bandwagon. If the stock price skyrockets, whales shall determine a particular period to move broad amounts of stocks at once and cause big movements on the market. This is a downside for many smaller investors that don’t understand the patterns that lead to the big splash. 

In other words, when whales buy, the prices go up, and when whales sell, the prices go down. This can cause instability in a market but doesn’t lead directly to market crashes. Market crashes are the child of many circumstances. One single factor doesn’t rule them all – a detail-oriented technical analysis needs to be conducted each time to determine occurrences such as volatility and market crashes.  

Back in 2013, a single trader splashed the market for Yen futures by putting a large order that led to other traders pushing the price even more. This occurrence is usually known as the ‘whale effect’.  

However, it is true that whales can make the market volatile, due to causing broad fluctuations in prices. Whales know that they are big and powerful and use it as a strategy to manipulate a stock price in their target price or even as a scare tactic. 

Smaller investors can protect themselves by understanding how to predict price movements, investment strategies, and patterns associated with whales before a big wave is formed. In other words, they can do some whale watching.

When it comes to the crypto market, even a bullish cryptocurrency market, big waves can cause harm as well. It is vital to understand that the trading technology of the crypto market has not yet caught the maturity and stability of other asset classes, deployed by OTC trading. Centralised financial markets are used to whale movements and know how to minimise the impacts of large trades that have the potential to radically alter a market.

Speaking of the crypto ecosystem, several swimming pools are yet to join to become an ocean. Taking into account that each exchange is segregated into small swimming pools of liquidity, they are vulnerable to whale activities. The situation would be different if those segregated small swimming pools unite.

Since the impacts of big whale splashes can be absorbed by drawing on liquidity from the wider market, the crypto industry may prosper if it eventually addresses these concerns and minimises the volatility that comes with having so many big fish in a market lacking depth. Integrating the crypto market has the potential to improve the crypto exchange liquidity and stabilise price swings.

Crypto whales are individuals or entities within the crypto market that hold a substantial amount or quantity of a particular asset. For example, anyone who holds a minimum of $10 million worth of Bitcoin can be seen as a whale. If their decision to sell holdings can flood the market with the crypto asset in question and create price swings, we are talking about crypto whales. 

The impact of crypto whales movement is a bit more tangible and visible when compared to other markets. In other words, when whales decide to sell, cryptocurrency princes go on a downward spiral.

Some whales are institutional investors or well-known entities in the traditional markets and hedge funds that are venturing into the new world of crypto and making significant moves. Others are investors and crypto traders that hold a broad amount of cryptocurrency.  

Throughout the past, crypto whales influenced the pricing of Bitcoin, but their impact has been broad and visible when it comes to altcoins as well. Even though the $10 million worth of Bitcoin is a threshold for detecting Bitcoin whales, the minimum requirement is lower for altcoins, especially when it comes to those with a smaller market capitalization. 

Aside from cryptocurrency whales, NFT whales are also swimming through the crypto space. These are individuals or entities that hold a broad number of non-fungible tokens (NFTs), frequently by owning high-value tokens such as Bored Apes or Crypto Punks. For example, if a whole collection contains 1000 NFTs, someone who holds 50 of them could be considered an NFT whale. 

Transactions of a single crypto whale can substantially impact how a particular asset is valued. Due to their filled wallets, any broad move they make automatically influences the currency’s supply and demand. That is why they are big players in the DeFi space. 

Crypto trading activities of whales are closely monitored in order to try to predict price moves. When a market is new, unregulated, and susceptible to changes, big trades shift prices in a truly visible manner.  

Crypto whales are capable of making the market sway in a similar manner to large owners of stocks. Holding a significant proportion of a cryptocurrency’s total supply, whales can also be a supporting factor if they hold to their large positions instead of selling. 

The same applies to signalling market downturns. Let’s lay down a quick example. When FTX, a centralised cryptocurrency exchange held by Sam Bankmain-Fried, there were many rumours that one of the biggest exchanges was insolvent. 

However, nothing really happened until Binance announced its plans to exit and liquidate its holdings which amounted to 5% of the asset’s total supply. A few days later, FTX filed for bankruptcy protection.

Crypto whales prefer using the crypto market to make gains, but at some point, they may present a threat to the central pillar of the crypto industry – decentralisation.

For example, most blockchain-based projects are governed by DAOs, composed of token holders. Token holders are able to vote and influence major decisions associated with running a decentralised autonomous organisation (DAO).

Logically, the more concentrations of big holdings in fewer hands, the less decentralised the decision-making might be. As crypto whales are able to flip markets, they are able to impact governance issues as well. 

When talking about liquidity, imagine a crypto whale sitting on a large number of tokens and not moving at all. This can also harm a particular crypto asset if its total supply is capped at a certain amount. If that amount becomes locked in a single wallet, small fish such as minor traders and investors are limited to the remaining supply circulating the market. 

It is possible to spot a whale movement. In fact, it became a common practice in order to determine price trends. Due to the main perks of blockchain technology, anyone can track any wallet address and the amount it holds. However, this is only possible when wallet owners have real-world identities. 

When engaging in whale watching, the destination of the funds is an essential piece of information. For example, when a crypto whale moves a broad amount of assets from personal crypto wallets to exchanges, it signifies that the big fish is probably planning to do a major sell-off of cryptocurrency assets. When doing the opposite, it indicates that there probably won’t be any crypto trading anytime soon. 

On the other hand, they are not clueless. Sometimes whales prefer to keep a low profile and conduct wallet-to-wallet transactions by sending crypto assets to an OTC wallet and back when engaging in crypto trading. 

There are a few ways to catch a whale. Keep in mind that these are experienced traders and investors that hold a large share of market power. There is nothing actually you can do about it, but a bit of knowledge can help you in making better trading decisions and crypto investing activities. 

First, you can track whales manually. If you know the real-world identity and wallet address of a potential whale, you can enter that address into a blockchain explorer. In simple terms, a blockchain explorer refers to a database where you can check on-chain data. 

If this sounds like too much work, there are other options. For example, you can subscribe to on-chain analysis services. These are provided by companies dealing with market analytics that hold tools needed to spot live whale transactions. Another option is to track whale-monitoring accounts on social media and check them out on a frequent basis.