Deriving their names from the size of the huge mammals that swim around the Earth’s oceans, crypto whales refer to individuals or entities that own large amounts of cryptocurrency.
In the case of Bitcoin (BTC), someone can be considered a whale if they have more than 1,000 BTC, and there are less than 2,500 of them. Since Bitcoin addresses are pseudonyms, it is difficult to determine who owns which wallet.
While many associate the term “whale” with some of the lucky early adopters of Bitcoin, not all whales are really alike. There are several different categories:
Exchanges: Since the mass adoption of cryptocurrency, cryptocurrency exchanges have become one of the largest wallets of whales because they keep large amounts of cryptocurrency in their order books.
Institutions and Companies: Under CEO Michael Saylor, the software company MicroStrategy now owns more than 130,000 BTC. Other publicly traded companies such as Square and Tesla have bought a huge hoard of Bitcoin. Countries like El Salvador have also purchased a large amount of Bitcoin to add to their cash reserves. There are trustees like Greyscale that hold bitcoins on behalf of major investors.
Individuals: Many whales bought Bitcoin early when its price was much lower than it is today. Crypto exchange founders Gemini, Cameron and Tyler Winklevoss invested $11 million in Bitcoin in 2013 at $141 per coin, buying more than 78,000 BTC. American venture capitalist Tim Draper bought 29,656 bitcoins at $632 apiece at a US Marshall Service auction. Barry Silbert, founder and CEO of Cryptocurrency Group, attended the same auction and took out 48,000 bitcoins.
Wrapped BTC: Currently, more than 236,000 BTC are wrapped in the ERC-20 token wrapped in Bitcoin (wBTC). These WBTCs are mostly held with custodians who maintain a 1:1 link with Bitcoin.
Satoshi Nakamoto: The mysterious and unknown Bitcoin creator deserves his own category. It is estimated that Satoshi has more than 1 million bitcoins. Although there is not a single wallet with 1 million bitcoins in it, using on-chain data shows that of the first 1.8 million or so bitcoins created for the first time, 63% were not spent, making Satoshi a multi-billionaire.
Centralization within a decentralized world
Critics of the crypto ecosystem say whales are centralizing this space, perhaps even more central than traditional financial markets. A Bloomberg report claims that 2% of accounts control more than 95% of Bitcoin. It is estimated that the world’s top 1% control 50% of global wealth, which means that wealth inequality in Bitcoin is more pervasive than it is in traditional financial systems: an accusation that breaks the notion that Bitcoin can break central hegemony.
The decentralization of the Bitcoin ecosystem has dire consequences that can make the cryptocurrency market easily manipulable.
However, statistics from Glassnode show that these numbers seem exaggerated and do not take into account the nature of addresses. There may be some degree of centralization, but this may be one of the functions of free markets. Especially when there are no market regulations and some whales understand and trust Bitcoin more than the average retail investor, this centralization is bound to happen.
Sometimes, a whale places a huge order to sell a large portion of its bitcoins. They keep the price lower than other sell orders. This leads to volatility, which leads to a general decline in the price of Bitcoin in real time. This is followed by a chain reaction as people panic and start selling their bitcoins at a cheaper rate.
Bitcoin price will only stabilize when the whale withdraws large sell orders. So, the price is now where the whales want it to be so they can accumulate more coins at their desired price point. The next tactic is known as the “selling wall.”
The opposite of this tactic is known as the fear of missing out or FOMO tactic. This occurs when whales exert enormous buying pressure on the market at prices higher than the current demand, forcing bidders to raise the price of their bids so that they can sell their buy orders and execute their buy orders. However, this tactic requires large amounts of capital not required to pull off the selling wall.
Watching whale buying and selling patterns can sometimes be good indicators of price movements. There are websites like Whalemap dedicated to tracking every whale scale and Twitter handles like Whale Alert, which has been a guide for Twitter users around the world to stay up to date on whale movements.