With most crypto coins currently in a bullish run since the turn of last year, there have been a lot of talks as to what this means for cryptocurrency in general and also the reasons for this newfound surge in price. While one of the biggest factors behind this bullish run is the recent increase in the number of people utilizing digital currencies there are also other factors that most people do not see on the surface; the activities of crypto whales. The use case of crypto has always been the barrier but with Bitcoin ATM springing up, Database use case, games and casinos, eCommerce, and a lot more; the industry suddenly looks ripe to cooperate VCs and investors.
The term crypto whales stem from Bitcoin whales which refers to a small group of individuals or firms that hold a large number of Bitcoins. A recent study shows that about 40% of the total Bitcoin supplies lie in the hands of these whales. The basic concept of crypto whales follow the same premises as your regular law of demand and supply, the more demand for cryptocurrencies the higher the price of the same digital commodities. Since most whales have a significant amount of crypto in their possession, any form of market movement would impact the market more than a single individual holding a few coins or more. How does this price movement work? A single trade made by a group of whales has the potential of changing prices more than an army of small investors entering the market or leaving. This way that group of whales could decide when to enter and leave the market thus controlling the market.
Problems Faced by Crypto whales
The problem of market manipulation has probably been the biggest problem with global crypto assets. Large holders of particular crypto could push up prices thereby trapping new investors in that price range. With more new investors, price is bound to shoot up as demand increases and thus the whales that have joined before the surge in the market would pull out leaving new investors with a massive loss. It is not an uncommon scenario to see some crypto whales account with a massive following on social media platforms like Twitter, with people trying their best to anticipate the movement of the market based on the trading policy of crypto whales. This view is consistent with the Pareto principle or 80/20 rule. The rule specifies that 80% of consequences come from 20% of the cause, showing an imbalanced relationship between inputs and outputs. In terms of this topic, it is said that most crypto coin’s price volatility is caused by 20% of market holders which are the crypto whales.
Also with global interest rates at the lowest rates in almost a decade, private investment firms are looking for ways to diversify their portfolio, and Crypto with the new acceptance is proving as a viable option to invest in those hedge funds. As new firms look for creative ways to invest funds in their possession, there are bound to be more firms jumping on this new ship and this can only lead to more increase in the number of crypto whales. Looking at how most crypto assets have done 3x of their initial market price since the pandemic started last year, private firms are looking at eating from this huge market share.
While it may seem all gloomy, this trend has also offered hope to the crypto community as more and more finance-based firms recognize the importance of crypto to the overall business environment. This can only lead to more investors and with most crypto assets at a fixed market supply, the surge in prices can only continue being bullish. People are more likely to trust a coin when they see more structured firms investing in them as opposed to financial nuggets from friends and family. With this kind of mindset, it is most likely that as more private firms join the whale trend there would be a swarm of private individuals testing their luck in the market too.
The Government’s Place
On another note, Governments would be wondering if they can place such a financial burden in the hands of digital assets if they allow this current trend to continue. For one, it would eliminate the need for a central controlling bank as cryptos are built on the concept of decentralization. Also, it would be almost impossible for any form of monetary or fiscal policy to have any effect on the overall economy as the source of money no longer lies with the government. For now, one can only speculate on what direction this newfound development would lead to but one thing for sure the crypto army will continue to rise.