What is a Bitcoin whale?
The term “whale” is often used to describe the big Bitcoin players that show their influence in the Bitcoin market. The ocean as a metaphor for the market is apt, since one can expand it to include the big fish and the small fish; sharks; manifestations as frenetic food; waves as the market moves; Etc. However, it may be that the term “whale” has been applied to the wrong investor class because the players described below are really the largest creatures in the ocean.
They show up in exchanges with orders of 1000 BTC, from time to time, and the common perception seems to be that the “whale” order book is the heavyweight players that move the market and can manipulate the price if they wish. However, this view is inaccurate.
The fact is that there are players even larger than the so-called whales, who do not participate in the Bitcoin market through the small web interfaces that the exchanges offer us, the “retail market” (small fish).
The major players referred to are institutions such as Hedge Funds and Bitcoin Investment Funds. Some of these funds have announced their presence in the water:
- Pantera Capital
- Reserve Bitcoins
- Financial Binary
- Coin Capital Partners
- Falcon Global Capital
- Bitcoin Investment Trust
- Global Advisors Bitcoin Investment Fund
Others still have to paddle in the water …
… and others may or may not exist, according to their sources and the scope of their probe.
These funds generally manage hundreds of thousands of bitcoins, which strategically and covertly pass through the exchanges through a special agreement, out of sight and obscured by regular retailers.
With its large mass of capital, institutions can move the market at will. It is here that the metaphor of a Bitcoin whale becomes unique because any other inhabitant of the ocean simply must get out of the way or be moved with force. Also, no current is strong enough to deflect the whale from its course, so its intention becomes the way.
By injecting, say, 50,000 BTC, over the course of a week, a massive price change can be made. However, doing so on its own does not make sense because the goal of the institution, like the smaller players, is to buy cheap and sell expensive, in other words, make a profit after each investment.
Here is an interaction with the Bitstamp API through the IRC channel # bitcoin-otc:
[14:01] | ; market buy 50000
[14:01] | Bitstamp | This order would exceed the size of the order book.
I would buy 19,434,758 bitcoins, for a total of 19,191,083.3531 USD and I would take
the price to 99,999,999.
Buy 1 BTC now and sell a fraction of a second later generates a commercial loss due to the difference between the purchase and sale prices. Let’s increase the amount of BTC in this example: buying, let’s say, 10,000 BTC all at once, and assuming that the stock could absorb that amount, not only would it move the market price, but also the orders would go up on the upward path, as well as seeing many participants gain at higher levels.
[14:07] | ; market buy 10000
[14:07] | Bitstamp | A market order to buy 10,000 bitcoins in
this time it would take 6,213,164.9471 USD and take the last price up
660,8200 USD, which would result in an average price of
621.3165 USD / BTC.
Therefore, large market transactions are appropriate to exit operations, but not to initiate them, since the propagation and activation effect of the “obstacle” limit orders reduces the net effect of large orders in the market. Instead, larger players have to stagger and darken their market entries by dividing large exchanges into hundreds or thousands of small orders and then dribbling them into the market in hours, days or weeks.
Over here please
Given the institution’s desire to maximize the profitability of a large start-up trade, the distance traveled by this trade would increase if the institution can make retailers (small fish) join them in the move. Therefore, the larger players have no other choice but to “prepare” the market: read the broader market conditions, assess the “mood” of the retail sector and the willingness of market participants to go in a private address
Once an opportunity is identified, the task is to “massage” the market and direct the participants in the desired direction. The institutional player, therefore, achieves a greater return on investment, since the investment was the expense of establishing and “massaging” a particular movement, and the result was that small retailers and new public participants took the bait and passed in the rally, which increases its impact on the market and the effect of slingshots.
Phenomenon of the entire market
If any reader thinks this sounds incredible, rest assured that this is not my proposal of how I think it works, it is a standard practice of hedge funds. The big banks, the market makers of most of the Forex market, have teams of traders dedicated to doing this through business plans that last from a day to a few weeks.
The Bitcoin market has several characteristics that make it ideal for high-risk institutional investors such as hedge funds:
- Small market capitalization
- Relatively naive participants
- Without bank competitors
- Without regulation
The institutions listed in the top part of the article have apparently been activated in the Bitcoin market for the past two years. Although it does not make sense to talk about collusion, it seems rational that the great players (at least sometimes) coordinate their actions. Given that there are members of the community who are known to have considerable amounts of Bitcoin, one could imagine that they would reasonably discuss and align their interests with other potential market promoters.
Therefore, it is not about that 1000 BTC order that you see in the exchange order book, nor about the 50 BTC that went through Dell’s online retail store today. The BTC market, although high risk and based on an innovation that is difficult to understand, is the wildest dream of a speculator come true. All the time while it’s adjusting down, it’s because the bigger players are loading the bait.
As for the little bitcoin fish, it is more beneficial to simply swim with the Bitcoin whale and swim away when the mood starts to be frantic near the surface. Knowing what time it is, is the challenge.
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