crypto market actors


I wish I were a whale: Diving into the crypto whales

6 min Beginners


Whenever I hear the term whale, all I remember is the movie “In the heart of the sea”, a real-life story based in the early 1800s wherein the whaleship Essex set sail from Nantucket with a 20-man crew on a voyage to hunt whales, whose oil was responsible for New England’s booming economy. What should have been a routine 1-2 year venture, turned into a disaster when a giant sperm whale attacked and sunk the ship, leaving its crew stranded on three small whaleboats with minimal navigation equipment and a very low supply of food and freshwater.

Whale

That’s what we are talking about here - a big animal that can make or break the life of anyone that comes its way. In the cryptocurrency market, a whale is a big guy or a group of people or even an institution that holds a large amount of a particular cryptocurrency and can change the direction of the market in the way he wants.

For example, Satoshi Nakamoto, creator of Bitcoin is a Bitcoin whale, Charlie Lee, founder of Litecoin, was a whale till he sold all his holdings last Christmas. Their sell orders can trigger a big crash in the price of that particular cryptocurrency and similarly, their buy orders can take prices through the roof. Not only does it change the direction of that particular crypto for that day, it has potential to change direction for the medium term too.

Last Christmas when Lee sold all his Litecoin holdings, the price was hovering around all-time highs of $370. As soon as the news broke about big whale Lee cashing out, the price came crashing down and hit a low of $102 in February. Certainly, many other newsflows and overall panic around the cryptocurrency market and regulation added fuel to the fire, but Lee’s selling could be said to have triggered the change in direction from up to down for Litecoin.

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At times, even somebody who has bought huge amounts of those cryptos at lower levels and holding on to them could also become a whale and has the potential to change the direction of the prices in the future when prices increase multi-fold.

Given that prices of all these cryptocurrencies cooled off quite a bit from their all-time highs, it has given the opportunity to many institutions and established wealthier investors to enter the market with their big purses. They have all the potential to be termed as a whale. George Soros, for example, recently was in the news for showing interest to trade cryptocurrencies. Soros with his amount of wealth can easily change the direction of a crypto the moment he enters his trade to buy or sell and would certainly be a whale. All said and done, it is not easy to be a crypto whale.

Yes, you do have a potential to drive the prices up or down on your own, but there is a risk. Any big buy or sell order at one go would not just change the direction of the crypto in one particular direction, but also increase or decrease cost per unit of buying or selling that crypto. In order to save that cost, the whale has to be smarter and should stagger the orders to not have a material impact on the price and also not affecting his own cost per unit.

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Change of stage

The world of cryptocurrency trading and investments is still at its nascent stage and it won’t be too long before the professional and sophisticated traders and investors (such as Soros, Goldman Sachs, JP Morgan who all have already shown interest to trade cryptocurrencies)

enter the market and help in reducing the volatility, bringing stability as well as playing the role of market maker to large investors, who in turn would also be a whale.