What are Whales and How do they Affect Cryptocurrencies?
The cryptocurrency space has been criticized since its beginning in 2009. During that time, few individuals adopted bitcoin (and a few altcoins) and they have now become the ‘whales’ of the market with vast stashes of crypto holdings.
Moreover, the term ‘whale’ refers to an individual or a group of people that can manipulate the market using their massive crypto wealth. Whales are the big players, where the ocean is a metaphor for the cryptocurrency ecosystem.
The recent trend in the market is such that small traders (small fish) to earn some quick money look for waves that gigantic players create for their benefit. They tend to target smaller volume altcoins rather than cryptocurrencies like bitcoin. Bitcoin’s creator, Satoshi Nakamoto, could be considered the biggest whale in the cryptospace, who ostensibly owns more than one million bitcoin.
It is very important for small traders to know when a whale is buying or selling. A wrong judgment can lead to a heavy loss. Hence, it is important to observe the market trend carefully. Recently, several programs have been developed to detect these big players although none of them are a sure shot. It is recommended to do it manually to have a better understanding of the cryptomarket.
How to Detect when a Whale is Buying?
For ‘small fish,’ it is crucial to wait for whales to appear in the order book to make heavy profits with limited risk. Below are clues that can help hunt down the market’s movers and shakers.
Clue 1: Check the order book for an unusual surge in bid size
For example, suppose that the average bid size is 1000 and similarly, the ask size is 2000. However, when there is a market mover trading, the order book may see huge bid size compared to the asking price. If there are bid sizes much larger than average, it could indicate a whale is looking to get in on the cryptocurrency.
Clue 2: Change in volatility and price when the market is stagnant
Generally, if a coin is trading in a fairly constant range and suddenly the coin experiences an abnormal spike in volatility and price, this indicates the presence of a whale or at times a group of whales.
Clue 3: Look for spur in buying volume against selling volume
Usually, in a crypto market, the buying and selling volumes are split evenly or almost evenly, i.e., 50:50 ratio. This is where 50 percent are buyers, and the rest are sellers. So when the price is escalating the buyer ration maybe 70 percent and sellers at 30 percent. And vice versa when the price is going downward. However, if a whale is present in the market, the buying side may witness a boost to about 90 percent in a short period of time.
How to Detect when a Whale is selling?
For small traders, it can be very risky if a ‘BearWhale’ is present in the market; they are commonly known to take down the coin by liquidating huge sums of assets. Here are clues to track a ‘BearWhale.’
Clue 1: Track instantaneous cancellations of enormous buy orders
While overseeing the market, if a large bid size begins to vanish quickly then there is a possibility that a whale is about to dump the coin. For instance, suppose there are several large orders on the bid size, and then they disappear; we should be wary of a large sell order in this case. Also, a large sell in the order book, also known as a sell wall, can change the behaviors of other market players and push the price of a coin down.
Clue 2: Check for strong surge in price in a short time period
The presence of whale can be seen when a token experiences an escalated price in a short timespan and suddenly dies out as quick it skyrocketed. The price surge may not have occurred due to news or actual reason but due to the existence of whale. Once the price spike reaches a desired level, they begin to dump by selling all their holdings.
Clue 3: Strong momentum in volume
The abnormal growth in volume indicates that a whale is in the house. For example, when the trading volume is three times greater than the routine volume that might be the work of a whale or group of whales. When the volume is rising over the trading sessions and we observe an even larger volume of sell orders, that indicates momentum is shifting, as whales take profit and sell the coin.
Market shakeout: Whales the culprit
Whales are always blamed when suddenly or unpredictably the market crashes. Many crypto-enthusiasts think about what it would take to become a whale? According to several forums and crypto experts, it would take around 1,000 to 10,000 bitcoin.
However, it does not always work in the way that whales desire. October 2014 provides the biggest example, where the ‘BearWhale’ dumped 30,000 bitcoin for a price of around $300. The majority of the crypto-experts thought the move would devastate and crash the bitcoin market. However, it turned out to be the opposite where bitcoin’s price grew to $375 and eventually recovered as there were willing buyers at the same time. The case will forever be remembered in the crypto space.
Some crypto influencers are those who can manipulate trading, but not specifically known as whales. John McAfee is one such crypto influencer that has managed to skew the trading market. Although, it is unknown if he has investments in coins that are recommended, which he has denied. McAfee has managed to boost the price of small volume coins without inputting any money into them (apparently). Although not considered a whale, he has the ability to swing the market due to his massive fan following.
There are many whales in the market and that also includes over the counter (OTC) traders. Many big players purchase bitcoin from OTC or “dark pools,” hidden from the public eye, to avoid pushing the market higher. Therefore, many experts believe that they still can manipulate the market. As the crypto space grows bigger day by day, it takes a higher volume of assets to shake the market in the desired direction for whales.
This guide was adapted from a BabyPips post, which can be found here.