Whales are the biggest fish in the crypto ocean. In other words, whales are people (or organizations) who own substantial amounts of crypto, or who have the funds to make astronomical purchases. This gives them the ability to control the market by setting up buy and sell walls. The actions of buying and selling quantities that the market cannot process have profit-making potential, if executed properly.
Throughout crypto history, whales have had a tremendous impact on the market. While some whales and their actions have been identified, most whales prefer to stay hidden and operate “from the depths.”
- Whales are people or organizations who own large amounts of crypto.
- Whales can manipulate the market with their massive wealth.
- Sell walls decrease a coin’s price, allowing whales to make cheap purchases.
- Buy walls force investors to increase the price of a coin that a whale owns.
Legality of whale manipulation
First of all, let’s point out that manipulating the market with large amounts of assets (whale manipulation) is prohibited on most regulated markets. Governments and regulatory bodies continuously scrutinize the markets for suspicious activity and penalize offenders. While a part of the cryptocurrency market is still free of regulation and vulnerable to exploits like this, a greater part of the market has achieved a level of regulation and compliance that matches traditional financial markets, sometimes even outdoing them.
This is in no small part due to the efforts of institutions such as Bitstamp, who have taken great strides towards achieving a regulated and compliant status, thus protecting the funds of their users and making sure they’re not used for illegal activities.
Nevertheless, despite the best efforts of everyone involved, neither traditional financial markets nor cryptocurrency markets can be said to be completely safe from whale manipulation. So let’s take a look at how whales work to see where an investor needs to take care.
Blocking the market with a sell wall
Let’s say that a whale comes across information that a crypto is going to become regulated, which could send its price skyward. They want to buy even more of that coin but, at the time, they deem it too expensive to be worth the investment. Owning a sizeable amount of these coins already, they can set up a sell wall to artificially decrease their price.
To do this, the whale opens an enormous sell order, putting lots of coins on the market at a price beneath the lowest price published in the order book. Everyone else selling these coins will then have to reduce their price below the one posted by the whale, or else they won’t be able to sell a thing.
If the sell wall remains, the coin will be then selling for much less than before. Once the whale feels they’ve diminished the price enough, they remove their sell order and repurchase the crypto at the reduced price. And then, out of the blue, the regulation kicks in and everyone wants to get their hands on that coin again. Demand rises and, with it, the price.
Pumping the price with a buy wall
There’s always a bigger fish, and the colossal ones have other tactics at their disposal. A gargantuan whale (or better yet, a group of whales working together to manipulate the market), can take the opposite route and profit by pumping the price. The whale or group of whales open vast buy orders at prices above the market, thus setting up a buy wall.
These colossal buy orders elevate the price at which orders are executed and trick other traders into increasing their buying prices, too. Seeing that the prices are ascending, many people will start to purchase the coin due to FOMO, or fear of missing out on an easy profit. The enthusiasm for the coin drives the price ever higher. Meanwhile, the whales cancel their buy orders before a noteworthy amount has been processed and HODL (keep, or hold, their assets) as they watch their wealth grow.
Alternatively, they can keep their orders up, to avoid slippage while selling their coins. Slippage is the fast change of price due to an imbalance in buy and sell orders. If a whale wants to sell a lot of coins at once, slippage would occur, meaning that the average selling price would be lower than desired. Maintaining a buy wall while selling ensures that their coins are sold at a specific price.
Whales rarely surface
Whales often operate as though they are shoals of small fish. Instead of functioning as one big entity, they disperse their wealth over numerous accounts. They accumulate their wealth steadily and, when selling, divide up and distribute their orders evenly. This way, their actions are more difficult to detect and their identity harder to infer. Not only does that help them carry out their plans, but it also keeps them safe from prosecution. After all, like we said, whale manipulation is prohibited on most regulated markets.
In order to avoid whale manipulation, it is not advisable to place too much importance on the size of orders in the order book, when making investment choices. However, with large cryptos, whales lose much of their power: the larger the market, the less influence whales can exert over it. Even the mightiest of whales will struggle to manipulate a crypto with a titanic market cap, making BTC, ETH and the like resistant to manipulation.
Bitstamp supports only the biggest and best-established cryptos and takes many protective measures to prevent whale interference. If you want to swim among the crypto fish, you can create an account at Bitstamp for free.
This webpage has been approved as a financial promotion by Bitstamp UK Limited which is registered with the UK’s Financial Conduct Authority. Please read the Risk Warning Statement before investing. Cryptoassets and cryptoasset services are not regulated by the Financial Conduct Authority. You are unlikely to be protected if something goes wrong. Your investment may go down as well as up. You may be liable to pay Capital Gains Tax on any profits you earn.