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As the popularity and value of Bitcoin and other cryptocurrencies continues to rise, so too does the number of individuals and groups looking to take advantage and make large amounts of money from it. By now, stories of huge profits being made by keen investors come as a surprise to no one. However, there is now a particular group of investors who are worrying some, while inspiring others. This group is known in the industry as cryptocurrency whales. This term is used to describe individual people or organizations who seek to buy large amounts of a cryptocurrency, thus raising its value, before either selling some or all of it once the value reaches an amount that they deem to be substantially profitable or holding out until it does. The ability whales have to manipulate and arguably even control markets, has brought a lot of public scrutiny to their activities, with many waiting to see if financial authorities, exchanges and/or governments are going to step in and regulate them in any way. It can be argued that such measures are necessary for the future of cryptocurrency trading, especially to protect everyday individual investors.
In January of this year, The Telegraph reported that roughly 13% of all bitcoin is currently being stored in only just over 100 different accounts. This equates to roughly $80 billion, a figure which is alarming many market experts. The worry is both valid and understandable, if each person reading this gathered 100 of their acquaintances and pooled their money together the total would probably barely reach 1% of that. Expanding the statistical range only illustrates the point further, it is believed that 40% (equivalent to roughly $240 billion) of all Bitcoin is being stored in fewer than 2,500 accounts. Those unfamiliar with bitcoin and it’s popularity would be forgiven for thinking that these numbers are representative of a small market, however, they would be wrong as there are believed to be over 100 million active accounts worldwide. As recently as last year, the presence of whales in the cryptocurrency ecosystem was debated as many of the biggest deals remained anonymous and unpublicised. Nowadays, the publicity of such deals, as well as the fame of some of the individuals and entities making them, makes the presence of whales undeniable. In February 2021 it was reported that $200 million worth of one of the most prominent up and coming cryptocurrencies, Ripple (XRP) was extracted from a cryptocurrency wallet in one transaction. Other stories of this nature include Elon Musk buying over $1.5 billion worth of Bitcoin and a single withdrawal from Coinbase of over 4,000 bitcoin, equating to an eye-watering $230 million.
The most worrying aspect of whale activity on the cryptocurrency market is it’s contribution to what many believe is becoming an increasingly volatile market. Large single transactions can directly lead to huge fluctuations in price, which makes things more difficult for smaller investors. Research on Bitcoins price swings clearly demonstrate the direct effect that whales have on the market. For example, Bitcoin reached its highest ever price on January 8 of this year with a valuation of just over $41,000. Just over two weeks later however, its valuation was listed at around $32,000, a drop of around 25% in little more than a fortnight.
Many questions have arisen from this and it is believed that something will soon be done about this issue. Until then, it’s important that investors, especially new and inexperienced ones make sure to fully inform themselves on the exact reasons for price fluctuations. Whales are by no means are reason to be afraid of investing in cryptocurrency, just cause for caution.