The Latest Crypto Whale & Its Effects on the Cryptocurrency Market

• Amber Smith
• August 04, 2022

With the current bear market, cryptocurrency is taking a big knock. With this big market dip, we’ve also seen some challenges appear on the horizon – it seems that crypto whales have reared their ugly heads once again. 

If you’re new to the crypto sphere, you may not be familiar with the term “whale” within the crypto industry. A whale, also known as a crypto whale is an individual or entity that holds a large number of tokens of a cryptocurrency.

Whales hold so much cryptocurrency that they have the power to manipulate currency valuations, meaning they can have an effect on the rate of exchange of a currency. Because they are high-profile wallets, whales become a problem for cryptocurrency because of the concentration of wealth, especially when it sits unmoved in an account. When this happens and coins lie dormant in an account instead of being traded, that cryptocurrency’s liquidity is lowered because there are fewer coins available to trade. Another effect whales can have is increasing price volatility, particularly when a large quantity of crypto is moved in one transaction. When a whale sells, other investors automatically go on high alert to watch for indicators that whales are “dumping” their holdings. The most common sign that investors look at is the exchange inflow mean – the average amount of a specific cryptocurrency that gets deposited into exchanges. If the average amount of coins per transaction exceeded 2.0, it is an indicator that whales are likely to start dumping if it correlates to many whales using that exchange. 

Recently, it was reported that one of the largest Bitcoin whales outside of exchanges decided to liquidate 15, 000 Bitcoin for $350 million. This whale is said to be the largest Bitcoin whale that doesn’t store its crypto on exchanges but rather has direct or self-custody of its crypto. The whale made five transactions in total to sell 15k above Bitcoin. In the first transaction, the whale sold 500 Bitcoin, followed by 2500 Bitcoin in the second & third transactions, and 5000 Bitcoin in the fourth and fifth transactions. Crypto communities and trading platforms have tried to understand the whale’s logic behind these transactions and what short-term effect they might have on the crypto market. Trading applications like Bitcoin Method are trying to figure out whether these transactions ran at a profit or a loss for the whale. There are two scenarios to consider – first that the whale could have been an early Bitcoin adopter or have acquired its crypto at a low price, and the second scenario is that the whale could have liquidated part of its crypto stash to generate capital for other offline investments. 

It has been argued that countries that are implementing crypto regulations are overlooking one of the biggest threats to the crypto industry – whales. With many countries clamping down on their crypto regulations, it seems that the risk of whales is not prioritised when putting forth these regulations. These regulations tend to centre around whether or not certain products should be classified as securities because from a government’s perspective, that is when strings start getting attached with regard to regulations. It has been highlighted by investors that the risk in crypto does not lie in products but rather in people. There are no authorities or institutional checkpoints when it comes to cryptographic architecture. Nobody has access to modify any fundamental property of each token. The risk in crypto comes down to the volatility inherent to the asset class. The risk is that, at any given point, the price of the product an investor has bought, could come crashing down without warning or even reason. This solidifies the fact that one of the biggest threats to crypto is not the products on offer but rather the people that have the power to move the markets, A.K.A, whales. 

With the UK Treasury putting forward its new proposed Markets Bill, the question is, have they addressed the threat of crypto whales? The bill aims to amend the current regulations pertaining to banking and payment systems by extending these regulations to include digital assets but one wonders whether this is enough to help the country achieve its goal of becoming a secure international crypto hub considering the threat that whales pose to the industry.