Crypto Whales Might Be Able to Manipulate Markets but Not in the Long Term

• A Crypto Whale Watcher Scare
• How Crypto Whales Manipulate Markets
• Whales Can Manipulate Markets in the Short Term but Not Long Term
• Crypto Exchanges Inadvertently Aiding Whales

Bitcoin whales bought the dip during the six-month long crypto winter. The sudden market downtrend that occurred in November last year saw BTC plunge to sub $4,000 levels and subsequently edged out weak hands.

It, however, also allowed bitcoin whales to purchase hundreds of thousands of bitcoins at downgraded prices. According to a new research report published by Diar, cryptocurrency whales were able to acquire over 450,000 BTC in less than nine months.

The communique reveals that approximately 25 percent of all BTC in circulation is held in addresses with a balance of between 100 and 10,000 bitcoins. In August 2018 when bitcoin was valued at $8,000, wallets in this segment held about 20 percent of the total number of coins in circulation, which is approximately 5 percent less than they do today.

A Crypto Whale Watcher Scare

The crypto community is largely watchful of bitcoin whales because they are able to make major moves that can cause crypto prices to tank or surge depending on the resilience of the prevailing market-trajectory.

The NEO community recently raised alarm after coins worth over $300 million were transferred to an unknown wallet. The huge transfer caused widespread panic among investors forcing the NEO team to issue a statement.

What. The. Actual. pic.twitter.com/kCFlP2X3bc

— Billy Saurus (@BillySaurus42) May 23, 2019

According to the firm, the shift was routine and planned. The notice read in part, “On May 23rd, NF transferred 5,538,832 newly unlocked NEO to the unlocked address. The remaining 29,461,168 NEO were first sent to a change address before being transferred back to the locked address. This was done to differentiate the transactions for the community’s reference.”

The management cited the digital currency’s white paper indicating that the assets are not for sale on exchanges but are set aside to be used in helping grow the community. 29,461,168 NEO is about half the total in circulation, which is 65,000,000 digital coins. Selling such a huge amount on exchanges would crash prices.

How Crypto Whales Manipulate Markets

Crypto whales typically rely on market dips to accumulate substantial digital assets to be used in price manipulation. The more cryptocurrencies they have under their control, the more influence they possess.

Rinse and repeat tactics are a typical strategy used by this group of investors to tamper with an asset’s value. Flooding the market with sell orders below prevailing rates, for example, overwhelms demand and tanks prices. 

If perfectly executed, a whale can slowly buy back the number of coins sold and more at deflated rates as long as market sentiment remains unchanged for a sustainable period of time. Alternatively, over-the-counter (OTC) desks can be used to purchase more digital funds at a lower market price.

Inversely, tens of millions of dollars can be pumped into the crypto sector via exchanges using buy orders set above existing rates. This causes prices to climb. A whale’s untraded assets can then be sold at a higher value to yield greater returns.

Whales Can Manipulate Markets in the Short Term but Not Long Term

The recent algorithmically managed $100 million BTC buy order is a perfect example of what can happen when risk inclined whales make moves. The buy order was set above prevailing market rates and executed across three major exchanges. The move apparently triggered BTC’s price to increase by over 25 percent within 24 hours.

Such tactics are effective in certain instances but not all. Market turbulence can affect the effectiveness of these strategies. With wash trading and manipulative buying and selling taking place all the time, the effects of such a move can sometimes be blunted by a myriad of factors. Successful executions usually require good timing and tens of millions in fiat or digital currency depending on the intended moves.

There Are Limits of What’s Possible

Numerous factors including liquidity limit the effectiveness of price manipulation strategies and many of them are tied to sentiment. Whales can cause market downturns, for example, but this has the undesirable effect of adversely influencing an asset’s outlook. It leads to the creation of a resistance point and causes liquidity to plummet.

If sentiment pertaining to a particular asset becomes overwhelmingly negative, it becomes harder to sell because investors are naturally skeptical about the outlook. This leads to less buy orders when there is an oversupply of coins.

There are also limits when prices are manipulated upwards. Because of the volatile nature of the market and widespread manipulative strategies, fear, uncertainty and doubt (FUD) cause investors to become unsure about the right time to buy or sell. This eventually causes the frenzy around a spike to die down and demand to wane unless there are naturally strong factors driving the market.

Of course, there is Fear of Missing Out (FOMO), which is a real thing and sometimes adds to the euphoria thereby increasing upward pressure on an asset’s value.

Ultimately, crypto whales do not determine bitcoin’s value but the community and its underlying network protocol do. Episodes such as BTC’s halving event directly influence the demand and supply of coins and affect all crypto users regardless of holdings.

General demand for the digital currency as a speculative instrument and a store of value will also continue to dictate bitcoin’s market price and generally override short-term manipulation.

Crypto Exchanges Inadvertently Aiding Whales

Many crypto exchanges now offer margin trading features and this will inadvertently allow greater manipulation of markets. Such services allow traders to borrow financial trading funds and gives manipulators greater access to assets that can be used to influence the industry.

Both crypto market liquidity and asset prices can be manipulated through margin trading. The inclusion of OTC trading desks increases manipulation capabilities. It is estimated that about two-thirds of all cryptocurrency trades take place on these marketplaces.

They allow investors to trade without moving markets but whales can manipulate crypto asset prices through exchanges and then buy the undervalued assets via firms offering over-the-counter trading services. Overvalued coins can also be sold through these platforms.

(Featured Image Credit: Pixabay)