Whale Watching

Whale Watching

In one of my first articles I explained why crypto-currencies have value, I also mentioned the problem of ‘whales’. The term refers to individuals who own large stakes in any particular crypto-currency. You might find it concerning to learn that 40% of the available Bitcoin are contained within only 1000 wallets. These large stakes give their owners immense power over the direction of the market and the value of their chosen crypto-currency. Using techniques such as ‘rinse and repeat’ and ‘painting the tape’ to manipulate the market price, malicious whales are a cause for concern within the crypto world. ‘Rinse and repeat’ essentially means a whale sells a large portion of their stake causing the price to plummet causing panic. Once the price drops far enough, the whale buys back his initial stake and more, increasing their share of the market.  ‘Painting the tape’ involves two traders buying and selling a commodity amongst themselves at steadily increasing prices, this gives the appearance the market is moving in an upward direction and draws in additional buyers, causing the price to artificially inflate.

Market manipulation is nothing new, and it is out lawed on traditional markets. However, we are not talking about traditional markets.  A potent cocktail of unregulated exchanges, low liquidity, daily ICOs, amateur traders and exponential price increases has resulted in an environment ripe for exploitation. This week saw a shift in the mood, which has me worried. Bitcoin has gone mainstream, everyone wants in, and the recent release of Bitcoin Futures shows just how far the marketplace has come. The problem is that big players have entered the game and bitcoin is now extremely expensive. Fears the bitcoin is nearing its peak has led many wannabe millionaires looking for alternatives. Top Alt-coins have received huge interest and their prices have shot up accordingly, epitomized by Litecoin which doubled in value in less than 24 hours. Let me make it clear, I am not saying these are bad investments. I just want to highlight the additional risk Alt-coin investors are taking. Bitcoins fame and popularity has made it become a relatively ‘safe’ option to invest in. The increase in size and liquidity of the market means that only the biggest of ‘whales’ can cause a splash in the market waters. Many Alt-coins on the other hand, with smaller user bases and token distribution, are still subject to aggressive market manipulation. I urge anyone looking into Alt-coins to do your due diligence, with thousands of options to choose from many criminals have unfortunately seized upon the crypto-currency craze to run scams.

The good news is that many Alt-coins are safe. Personally, Ethereum is my favourite but Litecoin, Dash, and Monero are all notable mentions.

The question you are probably asking yourself is who are these whales? You’d be right to ask this question. Unfortunately, although the blockchain allows use to see which wallets contain large sums of bitcoin, it does now allow us to see who is the owner of the wallet. Among those elite few are the Winklevoss twins, now bitcoin billionaires, who bought $11,000,000 of bitcoin in 2013 in following their successful Facebook law suit. The elusive founder, Satoshi Nakamoto, is also believed to have a large stake, possibly up to 1,000,000 bitcoins, in various wallets used in the founding days of the blockchain. There has been no sign of Satoshi in years and there is good reason to believe his coins will never become active. The remaining whales are likely to be:

  • Early adopters, who bought when bitcoin’s price was low.
  • Exchanges, who hold the bitcoin for thousands of their users.
  • Big mining firms, probably the most influential whales and the most interested in its price.
  • New hedge funds looking for high return investments
  • The US government, who own a huge stake of confiscated bitcoin.

I am not sure the libertarian community are too happy about that…

Christopher Braithwaite

Author: Christopher Braithwaite

The founder of TMTalks, Christopher, is based in the United Kingdom and writes for the site in his free time. Particular areas of interest include Space, energy, cyber security and block-chain technology.

Leave a Reply

Your email address will not be published. Required fields are marked *