Borrowing from the notion that whales are the biggest creatures in the ocean, the cryptocurrency community adopted this term. In the crypto space, a whale is someone that holds a significant amount of a particular digital currency, enough to potentially move the markets with a single trade.
In this article, we explore what being a crypto whale entails and review how they can influence the blockchain market.
What is a crypto whale?
A cryptocurrency whale is the cryptocurrency community's term for individuals or organizations who have a substantial quantity of cryptocurrency (money invested in one cryptocurrency). When whales control significant amounts of a particular cryptocurrency, they have the power to manipulate price movements.
What number elevates a trader to whale status in the cryptocurrency world is debatable. In most situations, the community appears to believe that when a whale holds a significant number of the available coins they "upgrade" to whale status. It's a common understanding that whales generally account for more than 10% of the overall quantity of a specific cryptocurrency.
In May 2022, according to BitInfoCharts, four Bitcoin wallets controlled 3.49% of all Bitcoin in circulation and the top 100 wallets held around 15.36%. The meme coin, Dogecoin, is even more concentrated. In May 2022, it was reported that 15 addresses controlled almost 52% of Dogecoin's total supply of 29.5 billion coins.
It is common for retail exchanges and founders to be listed as whales, as is the case with Ethereum where the founder Vitalik Buterin is the leading Ethereum whale to date. It makes sense for him to hold a considerable amount of wealth through the second-biggest cryptocurrency that he founded in 2015.
These big wallets are closely watched by the crypto community and investors and when any of them make transactions they are quickly publicised. Whale Alert has the most prominent news source when it comes to leading whale transactions, quick to report through its website or on Twitter whenever a whale has made a large buy order or transaction.
Below is an example from Twitter from Whale Alert:
How whales affect cryptocurrency prices
Price volatility can be increased by whales, particularly when they move a significant amount of one cryptocurrency in one go. For example, when an owner tries to sell their BTC for fiat currency, the lack of liquidity and enormous transaction size create downward pressure on Bitcoin's price. When whales sell, other investors become extremely vigilant, looking for hints of whether the whale is "dumping" their crypto (and whether they should do the same).
The exchange inflow mean, also known as the average amount of a certain cryptocurrency deposited into exchanges, is one of the most common indicators crypto investors look for. If the mean transaction volume rises above 2.0, it implies that whales are likely to start dumping if there are a large number of them using the exchange. This can be viewed by regular crypto traders as a time to act before losing any potential profit.
How whales affect liquidity
When it comes to learning about whales and liquidity, one must remember that while whales are generally considered neutral elements in the industry, when a large number of whales hold a particular cryptocurrency, instead of using it, this reduces the liquidity in the market due to there being fewer coins available.
What crypto whales mean to investors
In terms of the relationship between whales and investors, one must remember that there are various situations in which a person may transfer their cryptocurrency holdings. It's worth mentioning that moving one's assets doesn't always indicate that you're selling them; they might be switching wallets or exchanges, or making a major purchase.
Occasionally, whales may sell portions of their holdings in discrete transactions over a longer period to avoid drawing attention to themselves or generating market anomalies that send the price up or down unpredictably. This is why investors keep an eye on known whale addresses to check for the number of transactions and value. This is not necessarily a task that newbie investors need to actively be involved with, however, understanding the terms and how whale accounts can affect the market is recommended.
If you're a seasoned cryptocurrency investor, it's advised to keep an eye on what the whales are doing. Movement does not always indicate that you should panic, many whale investors are simply company owners who have invested heavily in Bitcoin or other big cryptocurrencies with the intention to benefit from their deflationary nature.
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