Can bitcoin early adopters bring the market down easily?
There’s an opinion in the crypto community, that bitcoin transactions worth tens of millions of dollars can significantly affect the volatility and sentiment in the market. At the end of October, an unidentified person or organization moved 10,000 BTC from one unknown wallet to another.
This is an illustration of the actions of the so-called bitcoin whale, who able to transfer $100 million from one place to another in a few clicks. It is not surprising that such large transactions attract the attention of many traders and analysts.
In recent years, various services that track the movement of large volumes of digital assets have appeared on the market. For example, there is a Whale Alert, founded by brothers Frank and Mark in 2018. It tracks large transactions on 11 blockchains, reporting them on a Twitter account with more than 150,000 followers.
On October 22–23, the BTC price plummeted but rose above $10,000 over the next three days. During this “roller coaster” Whale Alert recorded a lot of large transactions, including the aforementioned 10,000 BTC. Such movements make traders wonder whether whales are the cause of intense market movements. Or, perhaps, their actions are already a reaction to changes in the market situation? Finally, are the big players able to manipulate the market?
We made brief research about the impact of whales and Tether stablecoin on the price of BTC, how the EOS project collapsed Ethereum through the Bitfinex exchange, and what tools for analyzing large transactions will appear in the future.
Whale Alert calls whales anyone who can cause price fluctuations by operating their assets. It can be either a secured individual trader or a company like Xapo, storing crypto assets for huge amounts. Also, certain trading platforms can be whales, periodically transferring large sums to different wallets.
“Of course, exchanges are the richest holders of bitcoins. Their wallets are the largest, “ Whale Alert said in a conversation with San Francisco-based SFOX.
The question arises: What should be the minimum transaction amount to be considered “whale”? Whale Alert emphasizes that this value changes according to the price of the first cryptocurrency:
“When 1 BTC was worth $3000, the threshold value of the transfer from address to address was $5 million. Now, this threshold is $50 million.”
The peculiarity of the cryptocurrency market is that information about transactions in many blockchains is completely open. Thus, traders and crypto enthusiasts have access to information that in other markets can be considered insider.
The main difficulty lies in the organization and the correct interpretation of such information. Also, some whales can algorithmically break large trades into smaller ones (for example, using the “iceberg” orders available on the Bitfinex and BitMEX exchanges).
Referring to the young age of the crypto market, Whale Alert considers the presence of whales on it an inevitable phenomenon:
“There were only a few people at the origins of bitcoin. Therefore, the largest part of the coins maybe those who were engaged in its creation».
However, over time the number of whales may decrease as the market Matures.
“Eventually they will have to sell their coins. After all, more and more people are interested, more and more buy — shares thoughts Whale Alert. — Thus, eventually there will be a distribution of BTC and, I hope, there will be fewer whales”
However, the potential impact of bitcoin’s early adopters on the market could be very large. Whale Alert cites as an example one of the addresses with 80,000 BTC (>$735 million at the time of writing), inactive since 2011:
“If this whale, who has held his coins for so long without doing anything with them, decides to sell them, it will completely collapse the market. However, it is really difficult to say anything with certainty about the fate of this address. Are the keys lost? Was the man still alive? It remains only to wait and monitor the activity of these addresses.”
From August 29 to September 6, 2018, a major player transferred bitcoins worth about $1 billion from one address to several exchanges for subsequent sale. On September 6, when most of China’s assets were already sold, the price of BTC fell by almost 15%, and its 30-day volatility rose by 25%.
Published at Thu, 14 Nov 2019 08:36:49 +0000