Bitcoin "whales" - Definition and effects

A Bitcoin whale is a term used in the crypto world to refer to individuals or entities who own large amounts of Bitcoins and can cause large movements in the market. The term "whale" is also used for players who hold large amounts of altcoins and which may also affect these markets.

There is no exact threshold or limit to this definition, but some say that a Bitcoin whale holds at least 900 BTCs. A whale can also be defined as a person who owns enough coins or tokens to have a significant impact on market prices, either by buying or selling large quantities.

Although a wealthy individual is often referred to as a whale, the term can also describe an institution or company that owns a significant amount of cryptos and therefore has the power to move the markets in one direction or another. Examples are investment groups such as Pantera Capital (no relation to the musical group), FIG and Falcon Global Capital.

In practice, however, most of these large participants do not actually trade in conventional crypto markets, as their large orders could exceed the volume available in the order books of cryptocurrency exchanges. Instead, they buy and sell currencies outside the order books of these markets, in what is known as over-the-counter trading.

In the case of blockchains operating on a proof-of-share (PoP) basis, whales have considerable influence over the chain's governance processes (they have more funds involved and participate, which in turn makes them more involved). For these channels, the presence of whales can be a good sign (in terms of stability), as they have a strong incentive to act honestly and help the network grow. On the other hand, the fact that whales control most of the funds can have a negative effect in terms of power concentration.

From a technology perspective, a blockchain is decentralised, so Bitcoin whales are cause for concern, as their existence could lead to a small number of people having the power to control the market.

Bitcoin whales can also have a disproportionate impact on prices, fueling speculation that some of the more sudden and abrupt changes in BTC prices are due to price manipulation by whales.

A study by the financial publication National Business Daily (NBD) reports that less than 0.9% of investors hold around 88% of the current supply of Bitcoins.

The effects of whales on the crypto market

As we have already stated, Bitcoin whales are seen as market players with significant funds that can move the market. These big players are institutions, hedge funds and investment funds. Some of these funds have announced their presence in the market.

The size of these participants is such that sometimes they can even move the market almost at will and manipulate it. This is because a whale is a market participant who trades with much more money than the average investor and therefore can vary the price of cryptocurrencies.

Whales are often criticised for manipulating the price of a cryptocurrency and then selling it for more or buying it for less. Several crypto-currencies like the NEO or the Vechain have already been affected by such actions by "whales".

News related to crypto whales

On 25 February 2014, Mt Gox, a Tokyo-based cryptocurrency exchange, filed for bankruptcy protection after losing 849,000 Bitcoins.

Nobuaki Kobayashi, a Tokyo attorney and also bankruptcy trustee, revealed that he had liquidated around $695 million worth of Bitcoin (BTC) and Bitcoin Cash (BCH). The process started 3 years ago, and coincides with the period when the crypto market really started to heat up. It looks like the huge fixes in May and June 2018 were also catalysed by Kobayashi's sales.

Nobuaki Kobayashi has since been nicknamed the "Tokyo Whale".