The Internet is full of news about mysterious whales swimming in the crypto space. The moves these obscure mammals are making are financial in nature. When they move large amounts of cryptocurrencies worth millions of dollars, the tide can reach even the holders of other tokens.
How can a school of whales affect the crypto market? Let’s find out.
Decentralization - organizational structure of the cryptocurrency ocean
To understand the term "whale" better, it is necessary to first consider its "natural habitat", i.e. the decentralized space of cryptocurrencies.
Decentralization is one of the main advantages of cryptocurrencies that makes them so attractive to users, as it provides digital money holders with freedom from central authorities. The risk of any manipulation with digital tokens, including the introduction of censorship or policy changes, is greatly reduced when there is no single entity controlling the currency.
Yet, it is natural that some users acquire more tokens of the same cryptocurrency, which inevitably leads to a disproportionate representation of currency shares. A crypto whale is a special term to name entities that own a significant amount of a particular cryptocurrency.
"There is no exact cutoff threshold for this definition, but some say a Bitcoin whale should hold at least 1,000 BTC," Binance Academy explains the term, adding, "A whale may also be defined as a person that has enough coins or tokens to cause a significant impact on the market prices, either by buying or selling large amounts."
Read also: Crypto whales are buying Litecoin ahead of the major upgrade
At the same time, CoinKickoff, an educational platform about the crypto industry that conducted detailed research on the number of tokens owned by whales in January 2023, defined whales as investors holding 1% or more of the total number of tokens in circulation.
The difference between these two definitions of crypto whales is extreme. At the time of publication, the Buy Bitcoin Worldwide platform reported that the total number of existing Bitcoins was 19,408,212.5, while the number of Bitcoins yet to be mined was 1,591,787.5, meaning that one percent of the total number of mined Bitcoins was nearly 194,082 Bitcoin. At press time, 1,000 BTC had a value of nearly $29 million, while 194,082 BTC amounted to almost $5.631 billion.
The substantial value of the oldest cryptocurrency has led to a more detailed categorization of Bitcoin ocean dwellers. According to some sources, there is a distinction between a regular whale, who is still considered "a baby whale" of the Bitcoin world, and a blue whale, who has at least 5,000 BTC worth $145.060 million.
Other Bitcoin creatures are not too different from the Pacific Ocean animals. The financial services platform CryptoWallet.com provides a detailed classification of these animals.
The investors with the smallest Bitcoin amounts, which do not exceed 100 mBTC (millibit), are called crypto plankton. Those who own up to 1 BTC are called crypto shrimps. A crab is a crypto user who has collected up to 10 BTC, while a crypto fish has up to 50 BTC.
The group of larger Bitcoin investors includes crypto octopuses with up to 100 BTC, crypto dolphins that own up to 500 BTC, and crypto sharks whose ownership is below 1,000 BTC.
How many crypto whales are there?
For the crypto ocean, not only the amount of tokens held by the largest investors is crucial, but also the number of tiny whales and giant whales. The analysis of whale representation is regularly conducted by various organizations, however, the results of such studies are sometimes influenced by the researchers’ sentiment and the context.
For instance, there is a striking discrepancy between the results of CoinKickoff's study and the research carried out by the popular news outlet The Telegraph. In January 2021, its journalist Matthew Field found that 40% of all Bitcoin belonged to 2,500 people. According to Field, the largest Bitcoin investors significantly reduced the cryptocurrency supply for smaller crypto users and enjoyed the power to manipulate the price of the coin.
This year, CoinKickoff examined the top 200 cryptocurrencies based on data from the blockchain analytics platform IntoTheBlock. Although the findings obtained by CoinKickoff did not refute The Telegraph’s findings, they showed the industry from a different perspective. Namely, it turned out that Bitcoin is the coin "least dominated by whale investors." As per CoinKickoff's definition of a whale, there is only one Bitcoin whale, Satoshi Nakamoto, the inventor of the currency himself. His Bitcoin shares accounted for just 1.15% of the coin.
"Despite Bitcoin’s reputation as a whale investment that has been fluctuating since early 2023 as a result of a price surge, our research shows that only Satoshi Nakotomo — the currency’s founder — can be considered a true ‘Bitcoin whale,’" CoinKickoff's report states, adding that Bitcoin shares owned by Nakamoto have never moved since the currency's inception. Many members of the crypto community consider it highly unlikely that these coins will ever be moved.
While this fact is itself quite insightful, it is even more interesting to compare Bitcoin whale distribution to other tokens covered by the research.
It turns out that Bitcoin has the smallest number of whales. DASH, the open-source cryptocurrency that was forked from Nakamoto's currency in 2014, turned out to be second to Bitcoin when it comes to its number of whales. Yet, it has almost eight times more tokens in whales' wallets than Bitcoin. In addition, CoinKickoff found that "72% of the largest crypto coins have over half of all stock controlled by whales." It also discovered thirteen coins which had more than 90% of the supply belonging to whales. These are FEI (90.20%), MNTP (90.85%), IMX (91.39%), CRO (91.49%), FTT (91.72%), GUSD (92.17%), BIT (92.84%), AXS (($.88%), GMX (95.42%), HT (96.19%), XAUT (97.16%), HBTC (97.49%), and LEO (98.95%).
While this statistic shows the percentage of the total coin supply that belongs to whales, CoinKickoff also verified the exact number of whales holding these cryptocurrencies. Interestingly, the Bitfinex UNUS SED LEO (LEO) exchange token has the highest whale dominance, but there are only two investors qualified for this status. Meanwhile, Chainlink's coin LINK, the coin with the largest number of whales, has only 20% of the supply controlled by these investors. Each of them holds 1% of the coins.
Why are there so many crypto whales and how to invest in Web3 to become one of them?
For many aspiring traders fascinated by the tale of the whale in the crypto ocean, it may seem that whales are the most successful investors who have made immense profits through meticulous research and continuous education, secret investment strategies, insider knowledge, or sheer luck. Although all of these assumptions are true in certain cases, in practice, being a whale does not necessarily yield profits. Moreover, many whales already had sufficient funds to make large crypto investments that subsequently made them whales.
There are many reasons that can lead to a high concentration of crypto whales holding a particular cryptocurrency. For some tokens, for example, LEO, this is the result of the specific nature of the token itself. It was issued to address the deficit in Bitfinex. The coin is regulated by a smart contract that automatically burns the token when the exchange platform buys it and pays off its debt.
Read also: Dogecoin whale transactions increase 126% as Elon Musk buys 9.2% of Twitter shares
Often, the massive acquisition of coins takes place at an early stage of a crypto project. For example, if a coin exists on a network governed by the Proof-of-Work protocol, it may be easier to mine it at the beginning. Some projects with pre-mined tokens may distribute their main share among founders and developers or keep them in the reserve fund. If the bulk of the tokens is not acquired by the public after the coin launch, the school of whales continues to control the token.
Similarly, the fundraising method of initial coin offerings (ICOs) can lead to a massive purchase of coins by a few investors who feel confident to work with the new project. A low initial token price can also make it easier for other traders to acquire larger amounts of tokens at once.
Moreover, a cryptocurrency project can enable strategic partnerships with whales who will invest in the token to further support it in the future.
Sometimes a large group of whales is a sign of poor distribution mechanisms in the project that limit the accessibility of the coin or do not provide sufficient incentives to attract investors.
How can a group of whales affect decentralization?
Unfortunately, the happy habitat of crypto whales can harm small marine animals. In most cases, the movement of large amounts of a particular cryptocurrency can cause market volatility.
To understand how crypto whales move markets, let’s consider how a whale can profit from a coin with a modest market cap and trading volume, leaving smaller investors with losses.
A whale can start their move with a series of buy orders priced slightly higher than the coin value offered by the market. These actions can create the illusion of increased demand for the coin. Soon, smaller investors begin buying the coin in hopes of benefiting from an even larger price increase. The growing interest in the coin actually supports its value.
However, when the coin reaches a certain value, the whale sells all of their tokens and enjoys the profit. Although the whale does not necessarily intend to harm other market participants, this is a natural economic effect. After massive sell orders, the token price crashes, and all those who could not sell their tokens before the price drops have to face losses.
Still, as mentioned above, in some cases the whales are also issuers of coins. In such cases, the whales usually refrain from market manipulation as it can harm them and even destroy their project. An exception is a pump-and-dump scheme, where token issuers launch the project with the sole purpose of making a large and quick profit.
Although such a scenario is very popular, it does not mean crypto whales are bad for cryptocurrency. They often provide significant liquidity to the market and keep trading volume up, making it easier for small investors to trade. It is in the power of whales to stabilize high market volatility with their holdings.
In addition, whales can use their large capital to support cryptocurrency projects and spur innovation, while their overall presence on the market boosts confidence among smaller investors and promotes cryptocurrency adoption.
How to track crypto whales?
Even though tracking crypto whale activity will rarely give you the exact answer to the burning question "Why do whales move crypto?", you can identify a specific trend that can help you make a better investment decision.
For instance, a large amount of a certain cryptocurrency sent to exchange platforms can decrease its value. Conversely, a big exchange outflow of cryptocurrencies can increase its price.
There are several ways to track crypto whales. You can do it manually or opt for dedicated platforms and tools.
Tracking whales on your own requires on-chain analysis of three types of transactions: wallet-to-exchange, exchange-to-wallet, and wallet-to-wallet.
If you do not want to monitor whale activity manually, there are several options to choose from. There are financial news platforms that also perform their own analysis and share it with their followers on social media. For example, the Unusual Whales Twitter account posts statistics about crypto whales and the results of the studies that this platform conducts.
An even faster way to get information about crypto whales is to use a dedicated crypto whale tracker which will provide you with real-time updates, such as ClankApp, Whale Alert, Whale Watchers, or Whalemap.
The bottom line
Crypto whales are real, but their definition depends on the criteria accepted for the number of tokens they hold. While they are usually associated with market manipulation and volatility, they also have the potential to stabilize the market. Their concentration results from numerous factors, including coin distribution, early-stage coin acquisition, and partnerships.
Since whales can have a major impact on the market, it can be beneficial for traders to track their activities, even if it is not always possible to correctly interpret the reasons for whales' moves.
