Bitcoin Whale – The Consequences for Smaller Investors

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As a trader in cryptocurrencies, market volatility will always be your concern. You can always do your research and homework, technical analysis and price prediction strategies. But every once a while, someone throws you a curveball and all your hard work goes down the drain.

Market Movers and shakers

If you have been in this market for some time now, you would most likely hear of the term Bitcoin (or Crypto) Whale. The analogy of a large-sized animal gives you the illustration of a certain player with a large appetite (and a lot of space to store food too). So what is a Bitcoin Whale? This refers to entities (or individuals) who hold Bitcoin and large amounts of it. And when we say the large amount, we do not just mean a lot. We meant so many that they are able to move the market and even manipulate the price.

What should you know?

Unlike the other more common money markets, the percentage of ownership of Bitcoin can be too one-sided.  The common names that will surface when it comes to Bitcoin Whales are Satoshi Nakamoto (supposedly the inventor of Bitcoin), Tim Draper and Berry Silber (popular venture capitalists) and the Winklevoss twins.

Naturally, Bitcoin whales function similarly to majority asset holders (in other types of markets) where their actions will have a significant impact on the respective market. They are called whales because when they move, they will ripple the waters around them that will then sway the smaller fishes. Put that in a real-world scenario and most BTC holders would by now have undergone such experiences at one time or another.

Using the 80-20 rule, the top 20% of holders of Bitcoin out there have more than 80% of the value in the market. The top 3 Bitcoin wallets out there now carry about 7$ of the total and that if the price of BTC is anything to go by in the first quarter of 2021, the value would be somewhere around US$74 billion. To put that in context, one-third of the Bitcoin in circulation is stored in the top 100 wallets. At this price, the amount would be close to US$350 billion!

Where does it hurt smaller investors most?

With Bitcoin whales, it will be a constant problem for the smaller investors. This is because the concentration of wealth is too unbalanced. When a large amount is not moved in an account, it will slow down the liquidity of the BTC. This means price volatility will go up. But should the whale decide to move a large quantity of BTC at a given time, the price volatility will then be further increased.

In most cases, whales are most likely to sell their BTC in smaller amounts stretched over a longer period of time as they try to avoid attention. This will then cause market distortions where the price of BTC will change unpredictably. This would be extremely stressful for the smaller investors and holders of BTC as such movements might affect their funds quite significantly.

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