Who are the whales in cryptocurrency, features of their trading and strategies for influencing the market
Whales are rightfully considered the largest representatives of the animal world. There is an opinion that this is why the largest players with huge potential are called whales in the cryptocurrency sector. It is important for users working with cryptocurrencies to know: who are the whales in cryptocurrency and what impact they have on the market.
Who are the whales in cryptocurrency
The largest players of the cryptocurrency market with significant amounts of digital assets are recognized as such. They are able to create a wave at a convenient moment in order to purchase cryptocurrencies at a favorable rate for themselves.
It is easy to guess that the so-called wave is created artificially without objective reasons, and whales, taking advantage of the opportunity, speculate on the market.
A typical example of manipulation by crypto whales can be considered speculation on bitcoin in 2014. At that time, the value of the digital currency was about $ 400. One of the major holders of the cryptocurrency put up 30,000 BTC for sale, setting the price at $ 300 per unit. The operation provoked a wave of hype, as a result of which the value of bitcoin fell to $ 287. At the peak of the decline, the crypto whale acquired a certain amount of currency at a favorable price, and after another 5 days, the bitcoin exchange rate returned to its original value.
How Whales Affect the Cryptocurrency Market
When a huge amount of cryptocurrency is concentrated in the hands of such a whale, negative consequences inevitably arise, which can be expressed in the following:
- there is a shortage of offers on the market if a large owner of a cryptocurrency keeps it on the account for a long time without putting it up for sale (hold);
- if the whale begins, as they say, to drive a wave, panic begins in the market, which leads to significant jumps in the rates of cryptocurrencies.
Thus, the owners of the richest wallets get the opportunity to manipulate the cryptocurrency market, increasing volatility and reducing the liquidity of assets. Such actions discredit the very idea of decentralizing the sector, and given that bitcoin prevails over other cryptocurrencies, significant changes in the exchange rate can lead to fluctuations in the rates of altcoins (other types of digital currencies). All this together reduces the confidence of potential investors in alternative currencies.
What are the dangers of whales
Certainly by its ability to influence the cryptocurrency market. Being in a privileged position in comparison with other traders, these giants can easily displace unwanted players and even bring down the market. The consequences are obvious and threaten, first of all, big losses for ordinary traders and even for smaller whales.
At the same time, the period of a sharp and significant drop in price opens up the possibility of acquiring cryptocurrency for beginners. However, it will be difficult to stay in the market with a small amount of assets.
Experts in this field warn that with the arrival of large companies, including hedge funds, the cryptocurrency market is losing its independence. On the one hand, in many countries it remains a shadow sector for the state, on the other hand, whales essentially assume the function of control, subordinating the market to their own interests.
How whales trade
The giants of the cryptocurrency market use various strategies for their own purposes. Their essence is as follows:
- Pumping and dumping. A whale or a whole association of large market participants buy large batches of digital currencies, due to which demand is artificially created and, as a result, an increase in the price of the asset begins. When a certain value is reached, the whale starts selling the currency at the maximum price and thus earns. It is worth noting that the increase in demand is often facilitated by fake news, which is prudently posted on forums and social networks.
- Sales wall. This strategy is used when the whale intends to acquire promising cryptocurrencies by artificially keeping the exchange rate at a low level. Initially, a major player receives information from an insider (reliable information) that the price of specific assets should rise in the near future. The whale puts up a lot of orders for sale, thereby provoking a currency reset by less experienced traders. And often at a price lower than that indicated in the “Sales Wall”. When the right moment comes, usually before an event, the initiator starts buying up available assets.
- Revocation of the order. This manipulation involves putting up for auction an impressive volume of the order with the condition of full repayment. Ordinary traders, as a rule, are not able to fulfill the terms of the transaction, but the very presence of such an order causes unrest in the market. The price of the cryptocurrency begins to fluctuate, and when it reaches the desired value, the order is withdrawn. The described scheme is bad only because there may be a larger whale that can fulfill the rules of the application.
- A fictitious transaction that is carried out to create a sense of activity and increase the volume of trading. The crypto whale issues an order for the sale of assets and executes it himself. As a result, the owner of the cryptocurrency remains the same owner.
In conclusion, it is impossible not to note the positive impact of the activity of whales on the cryptocurrency sector, which is expressed in an increase in interest in digital currencies. Nevertheless, it is better for ordinary traders to “swim” next to such whales and track their actions in order to make an upward movement at the right time.
Published: 26 May, 2022