What are ‘whales’ or market movers in cryptocurrency?

A common term used throughout the cryptocurrency industry is “whale,” which is another name for a market mover. It’s something almost every investor wishes they could be, but very few have the resources required to claim the title. That’s because the only way to be a whale is to acquire an incredibly large amount of a particular cryptocurrency.

In this AAG Academy guide, we’ll explain what exactly a crypto whale is, why they are sometimes referred to as market movers, and how they can affect a cryptocurrency’s price and liquidity. We’ll also look at what whales mean for the average investor, and how they can manipulate cryptocurrency prices for their own gain.

What is a ‘whale’ in cryptocurrency?

A cryptocurrency whale, more commonly known as just a “whale,” is an individual or organization that holds a significant amount of a particular cryptocurrency. The name comes from the fact that these usually wealthy investors are large in terms of the number of assets they hold, as well as the power they have over the market.

There is no defined threshold for whale status — that usually depends on the cryptocurrency in question. However, the term is often used to describe those who hold enough coins or tokens to cause a notable impact on a cryptocurrency’s market value, either by acquiring more and causing the price to rise or, more commonly, by selling large amounts at once and causing a dip.

Some believe that in order to become a Bitcoin whale, an investor would need to hold at least 1,000 BTC, which is worth approximately $30 million as of March 27, 2023. However, not even that would be enough to move Bitcoin’s market value by 1%. With smaller, less valuable cryptocurrencies, becoming a whale would require a lot less capital.

Most cryptocurrency whales cannot trade on conventional markets, or through conventional retail exchanges, since they do not offer the necessary volume for a whale’s typically large orders. Instead, they rely on a process called Over the Counter (OTC) trading, which is a private market that allows larger investors to trade directly with one another.

Why are crypto whales also known as market movers?

As we touched on above, crypto whales are often labeled “market movers” because they have the power to move the market. In other words, their actions can have a direct impact on the market value of a particular cryptocurrency. This can then lead to a snowball effect as other investors follow suit, and then we can see sustained periods of market pressure.

Sometimes, this can be a positive thing from an investor’s point of view. For instance, if you bought into a new cryptocurrency project early and then a wealthy individual decides to acquire a large percentage of the token supply to become a whale, the market value of your assets suddenly increases as the value of the project itself balloons.

However, more often than not, whales have the opposite effect. They have a reputation for selling or “dumping” large portions or all of their tokens at once, which causes the market value of a cryptocurrency project to fall sharply. This is obviously bad news for other investors, whose tokens are now worth a lot less than they were before the selloff. And it may not stop there.

How can a crypto whale affect price and liquidity?

For example, if you own 10,000 BTC and you sell it all, you’re essentially dumping a huge number of coins onto the market. This move alone is enough to cause the value of BTC to drop considerably, but that is often just the start of it. Other whales and large investors see this and notice that the value of their investment is falling, and they begin to panic and start selling, too.

In a short space of time, the market value of BTC falls significantly, and for the investors who are still holding on, their BTC is no longer worth as much as it once was. A recent example of this occurred in fall 2022 when Ethereum whales dumped more than 3.3 million ETH, worth over $4.3 billion, causing its price to fall by more than 26% over five weeks.

As we noted above, this kind of situation isn’t so common with Bitcoin anymore because the project is so valuable, and it takes a significant number of BTC to have a notable impact on market prices. However, it can be common with much smaller, less valuable cryptocurrency projects that require a much smaller investment to become a large stakeholder.

It’s also worth noting the effect that whales have on liquidity. When large investors keep huge numbers of tokens tied up in wallets, they obviously cannot be used, which reduces the liquidity of that cryptocurrency. 

What crypto whales mean for investors

Whales are mostly bad news for the average cryptocurrency investor. Very little can be done to prevent wealthy individuals or organizations from buying large amounts of a particular token, so all we can really do is accept that they exist and learn to live with them. If you’re interested, you can even track whale wallets using online services like Whale Alert and Whale Watcher.

But should you really be concerned about whales? For the most part, probably not. It’s obviously in a whale’s best interests to keep cryptocurrency prices as high as possible, so large dumps like those mentioned above are relatively rare. When they do happen with more popular cryptocurrencies like Ethereum, their market values tend to recover fairly quickly.

However, whales are something you’ll want to look out for if you like investing in new crypto projects, which are much more susceptible to big impacts from large investors. It’s also worth bearing in mind that with new projects, the whales can be the project creators themselves, who may be hoarding lots of tokens so that they can sell them as soon as their value rises.

You can avoid being caught out by activities like these, which are essentially pump and dumps, by carrying out the right research before parting with your capital. See our in-depth guide to avoiding cryptocurrency scams if you would like to learn more.

Can crypto whales manipulate crypto prices?

Arguably the most dangerous cryptocurrency whales are those who manipulate market prices intentionally for their own gain. To do this, they may sell large amounts of a particular coin or token — or at least make it look like they intend to sell — to cause its price to fall, then accumulate more tokens at a lower price. This can be done using what’s called a “sell wall.”

A sell wall occurs when a whale creates an enormous sell order, putting tokens on the market at a price that’s beneath the lowest price on the order book. This forces other sellers to lower their prices, effectively reducing the overall value of the cryptocurrency. Once the price has fallen enough, the whale can cancel their sell order and repurchase the tokens at the lower price.

The opposite of this is what’s known as a “buy wall.” This is when whales create a buy order for a huge number of tokens at a price that’s above the highest price on the order book. This causes other traders to increase their prices, which effectively makes the crypto more valuable. The whale can then cancel their buy order or allow tokens to sell at inflated prices.

Buy walls are a common tactic to avoid slippage, which is when a trade’s expected price is different from the price at which the trade is executed. Slippage is particularly common with large trades because of the time it takes for them to be executed, so the average selling price becomes lower than desired. By inflating prices first, whales can minimize the slippage problem.

What are the benefits of crypto whales or market movers?

As you might have already realized by now, cryptocurrency whales or market movers tend to come with more downsides than upsides. But that doesn’t mean there aren’t some benefits. As we’ve already mentioned, one of those is that they can quickly make some crypto projects a lot more valuable, which may be a good thing if you’re a trader looking to make a quick profit.

Another benefit is that whales by their nature tend to be very wealthy individuals or organizations, which usually know what they’re doing when it comes to investing, so following their moves can be advantageous in the long run. Some crypto investors follow whales and put their capital into the same projects, in much the same way others follow experienced traders.

Of course, this kind of strategy comes with its own risks, and it’s important to be aware of those before trying it out for yourself. As is always the case when investing, carry out your own due diligence to find out whether an investment opportunity fits your personal strategy, and only put capital into projects that you are personally confident about.

References

Whale

Bitcoin whale

What are whales/

What are bitcoin whales

What are crypto whale trackers and how do they work