Cryptocurrency Whales: Who Are They?

If you’re a new cryptocurrency investor, then you’ve likely heard others reference “whales” before. You might not, however, know who these people are or what it means to be a whale. In this article, we’re going to go over this term to give you a better idea of who these people are, and why your fellow investors repeatedly tell you to watch out for them.

Investing in cryptocurrency is not for the faint of heart, and it takes a strong stomach to keep holding sometimes. Much of this roller coaster feeling you have is due to market manipulation, and it’s really just how financial markets work.

Even in more traditional markets, people are constantly trying to play on the fears and greed of others in order to make themselves more money. If you learn how to deal with these things though, you can protect your investment from the biggest enemy you have, yourself!

What is a cryptocurrency whale?

Whales are the big money cryptocurrency holders. These individuals typically hold a large number of coins within a specified asset, or perhaps just a very large amount of cryptocurrency as a whole.

This can give these individuals an abnormal amount of power when it comes to trading. Especially if the cryptocurrency that the whale is holding has a lower trading volume than other assets in the market. Very new coins can often have this problem or possibly quiet community developed projects.

You may have also seen people talking about assets which have had unfair distributions. Part of that complaint also stems from whales and the possibilities of price manipulation. This is a common concern for coins or tokens that had short-lived airdrops or very large premines.

Many times this is even seen as a manipulation tactic as it means that the orchestrators of an ICO or community projects have in essence made themselves the whales. This makes many investors nervous as it means that these developers can constantly dump coins on to the market if they choose to squeeze money out of a project they are not really dedicated to developing.

Why are whales dangerous?

When you hold a substantial portion of a particular currency it gives you the ability to greatly influence markets, especially smaller ones. That means it’s possible for these particular investors to cause large spikes in the price of certain assets.

Many times pump and dump groups will participate in these types of tactics on community coins with typically small trading volume. They will actually accumulate a good number of these coins for cheap prices and begin to spike the volume upwards. This creates a sort of feeding frenzy where other investors see the price going up and then buy in as well, hoping for quick gains.

Unfortunately, the people orchestrating these shenanigans are fully prepared for this, and once the price has reached it is peaked they start dumping all of their coins on the market, crashing the price. This leaves novice investors like you holding the bag while these individuals add to their pot.

It’s a dangerous game, and you should be very suspect of any asset you see pumping well beyond what it normally should. If you see a bland, half dead cryptocurrency suddenly skyrocket 1,000% out of nowhere, then this is likely what happened.

What about institutional money?

While there are even bigger whales who have corporate account level money, many of these individuals will instead utilize OTC trading. This type of trading allows these large-scale investors to purchase their coins off the traditional exchange order books.

This means that they can make trades without disturbing the natural flow of the markets and to buy or sell their cryptocurrencies without drawing unneeded attention to themselves. Many of them could not even utilize exchanges, because they would be placing orders too large for the books to even fill.

While this what happens in most cases, that’s not always true. The Mt Gox bankruptcy representative was not very well likely recently, because he apparently dumped large quantities of Bitcoin on to the open exchange market, angering Bitcoin holders who saw their holdings diminish in value.

Keep in mind that the price dropping does not stop at the person who sold originally. Other investors will see the price drop, and then sell their investment as well out of fear! This creates a domino effect which can devastate the entire market since all cryptocurrencies tend to follow Bitcoin very closely.

How can you protect yourself from this type of trading activity?

In some cases, you can’t. If the price of one of your holdings is being manipulated, then you’ll just need to learn how to identify this and go with the flow. This means not panic selling or buying based on emotions, but instead keeping a calm and level head.

You can of course benefit from this activity if you’re already holding a coin that decides to take a ride. This gives you a prime opportunity to sell for a profit if you’re quick enough. However, you may find that the ride is over just as quickly as it began, and you’ll need some impeccable timing to catch it.

You can, however, avoid popular pump and dump assets. Most of the time these are very low volume coins that would have a lower supply. This makes it easy to accumulate them on the cheap and manipulate the price, especially if you already have a substantial cryptocurrency bankroll.

Avoid any promises on social media of fast money, these people are looking to make a sucker out of you. They hope that you’ll buy up an asset that they’ve already pumped in price so they can make a profit. Avoid these situations entirely, you will not win here. Especially as a novice investor. Chasing these schemes will only end with you out your hard earned cash.

Instead, invest in solid projects that you have researched heavily before purchasing. Be prepared to hold these coins or tokens for the long haul, and don’t throw away your investment every time you see a short dip in the market.