Bitcoin Price Volatility And Bear Market Not Caused By Bitcoin Whales
Blockchain research firm Chainalysis revealed that the largest holders of Bitcoin are a diverse group that could be responsible for stabilizing rather than destabilizing, the market.
Blockchain research firm Chainalysis revealed that the largest holders of Bitcoin (referred to as whales) are a diverse group that could be responsible for stabilizing rather than destabilizing, the market.
The analysis revealed that the largest Bitcoin holders are mostly inactive in terms of trading and that those who are have been accumulating during downturns rather than selling aggressively during price peaks.
Large holders not driving factor behind volatile markets
Following an article by Bloomberg last month which reported that a Bitcoin whale was responsible for 15 percent plunge in Bitcoin price after selling more than 50,000 coins in a month.
Chainalysis decided to look into Bitcoin whales and their impact on the market. The research of the 32 largest Bitcoin wallets by Chainalysis concluded that those fears were blown out of proportion and in fact not true.
The research firm found out that the whales are a diverse group and only a third of the group are active traders. They added that the active traders don’t make huge transactions that could affect the Bitcoin price even though they could.
The report added that the whales have instead stabilized the market during recent price declines instead of causing massive price movements by being net buyers (buying more than they have sold).
That net activity demonstrates that trading whales were not selling off bitcoin in any mass amount, but rather were net receivers of bitcoin from exchanges in late 2016 and 2017. This indicates that trading whales were, in aggregate, buying on declines and, consequently, were a stabilizing, rather than destabilizing factor in the market, as shown in the chart below.
According to the post, this makes sense since the whales are professionals that have no interest in seeing the market plunge into a loss. If the traders require liquidity, then they are most likely to make use of OTC trading platforms that could manage huge transactions with little effect on market prices.
Four types of whales exist according to the study
The research looked into the 32 Bitcoin whales who don’t have any activity on exchanges in August 2018. These whales control around 1 million Bitcoins which is almost $6.5 billion.
The research revealed that there are four types of whales.
1. Trading whales (~33% of total ‘whale holdings’)
The first group is the traders who regularly interact with exchanges. Nine whales were found in this category and they control a total of 332,000 coins, worth just over $2 billion.
This represents just a third of the total whale holdings and they are also relatively recent arrivals in the Bitcoin universe, having entered the market in the past 2 years.
2. Large miners and early adopters (~33% of total ‘whale holdings’)
The second group is made up of miners and the early adopters. They entered the crypto market much earlier and are just 15 investors holding a total of 332,000 coins. This group has a low trading activity at the moment.
Chainalysis pointed out that this group was the most active in taking advantage of the significant price swings.
3. Lost coin whales (~21% of total ‘whale holdings’)
The lost whales are the third group and are five in number. Their wallets hold around 212,000 coins, worth approximately $1.3 billion. The owners of these wallets have lost their key and seem to no longer have access to their BTC reserve.
For the lost group, there has been no activity on their wallets since 2011.
4. Criminal whales (~13 of total ‘whale holdings’)
The criminals are the last group of whales, with three wallets here controlling over 125,000 coins and just short of $790 million in asset value. One of the whales is considered a money launderer while the other two are tied to the Silk Road darknet market.
Whales were net purchasers
during BTC price decline
The report concluded that the data they were able to obtain suggests that whales are not responsible for the price volatility of Bitcoin. The whales were the major buyers of Bitcoin during the price decline last year and this year.
Further, the report concludes with a positive note:
Our research suggests that while Bitcoin whales may be big and somewhat mysterious, they have less of an impact on market prices than many people believe.