Jasmine Birtles
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What are Crypto Whales and How Do They Generate Such Large Investment Returns?
Ruby Layram
16th Nov 2024
If you’ve ever dived into the world of cryptocurrency subreddits or Twitter feeds (now X of course), you might have come across the term ‘crypto whales’. In fact, you might have noticed that these whales tend to have a lot of money to move around and in turn, have a pretty big impact on the market.
So, what are crypto whales, why are they such a big deal and more importantly, how did they get to amass this large amount of capital to invest with?
What is a Crypto Whale?
To clear the air, a crypto whale is not a big fish that invests in crypto (although, that would make a pretty interesting article!)
Simply put, a crypto whale is an individual or organisation that holds a massive amount of cryptocurrency. These investors hold so much digital currency that even small moves on their part can send waves through the market.
Think of Jenga. Regular investors are players who can move just one piece at a time. If enough players pull out their pieces the tower will fall, but one player alone won’t have much impact. On the other hand, crypto whales are players who can take out a larger quantity of pieces at a time. When they move their blocks, the whole tower will wobble (or come crashing down!).
Unlike your average crypto investor, who might hold a bit of Bitcoin or Ethereum, whales have an incredible amount of influence. In fact, their transactions are often big enough to change the value of the currency itself. And it’s not just Bitcoin; crypto whales can hold significant amounts of various cryptocurrencies like Ethereum, XRP, or Solana.
In many ways, crypto whales are similar to hedge funds or large institutional investors in traditional markets. But in crypto, a market known for its volatility, the presence of whales has a unique and sometimes exaggerated effect.
How Much Crypto Do You Need to Be a Whale?
The exact amount that an investor needs to hold to be classed as a whale varies depending on the specific cryptocurrency, but generally speaking, holding 1,000 or more Bitcoin would qualify someone as a Bitcoin whale.
At the time of writing (November 11, 2024), 1000 BTC is the equivalent to around $8 million dollars. So crypto whales have a lot to play with!
For Ethereum, the numbers differ slightly, as the total supply and value per token vary. But typically, holding around 1,000 ETH or more would qualify one as an Ethereum whale. For other cryptocurrencies, the threshold varies based on the market cap and supply of the coin.
A whale in the world of Bitcoin, where one coin can be worth tens of thousands, is different from a whale in a smaller altcoin. But regardless of the coin, if you’re holding enough to shake up the market, you’re a whale.
How to Know Which Investors Are Whales?
Despite the large amount of crypto that they own, identifying whales isn’t an easy feat. This is due to the anonymous nature of cryptocurrency.
Crypto transactions are recorded on blockchains, which are public ledgers, so we can see the number of coins an address holds. But the anonymity of blockchain technology means we can’t always link an address to a real-world identity.
However, there are a few signs of a whale’s presence. Websites show the richest Bitcoin wallets. And, blockchain analysis tools, like Whale Alert, track large transactions from significant crypto wallets.
Some whales are publicly known, like those associated with certain companies, funds, or crypto pioneers. For instance, wallets linked to major exchanges or well-known figures in crypto are monitored by many traders and analysts to gauge market movements.
How Do Crypto Whales Develop Large Investment Returns?
As we’ve already established, you have to own a lot of crypto to be classed as a ‘whale’. So, how did they manage to amass this large amount of capital to invest with?
Crypto whales didn’t become wealthy overnight; they amassed their wealth through a combination of timing, market influence, and sometimes a bit of risk-taking.
Here’s a look at how they did it:
They Got in Early
Many whales were early adopters, buying Bitcoin, Ethereum, or other cryptocurrencies when they were worth just a fraction of their current value.
Back in 2011, you could buy a Bitcoin for a dollar, so imagine the fortunes made by those who bought thousands of coins and simply held on.
They saw potential in crypto before the rest of us caught on.
They Inflate the Price of Tokens
Whales can also increase the value of a token by buying large quantities. When a whale makes a substantial purchase, it can drive up demand, and with it, the price.
For example, if a whale suddenly buys a significant amount of Bitcoin, it could push prices higher, encouraging others to buy as well, often leading to a self-fulfilling prophecy of rising prices.
This strategy isn’t unique to crypto, but it’s especially effective here due to the market’s volatility and relatively lower liquidity compared to traditional financial markets. By driving up the value, whales can sometimes “sell high” and make an investment return – assuming they time it right.
They Buy the Dip
Whales are experts at “buying the dip,” or purchasing coins when prices are competitive, especially during bear markets or after significant price corrections.
Smaller investors may panic sell during downturns, but whales tend to view these drops as buying opportunities. By accumulating more coins during dips, they not only increase their holdings but can also stabilise prices or even encourage a recovery.
Please note that retail investors cannot replicate these strategies without significant financial risk.
How Do Crypto Whales Affect Crypto Markets?
Whales hold an enormous amount of influence in crypto markets. Here’s how they impact everything from price to liquidity and even the promise of decentralization.
Price
The impact of whales on price is perhaps the most obvious. When a whale decides to buy or sell, the large transaction volume can cause big price movements.
This effect is amplified in lower liquidity markets. If a whale offloads a large number of coins, it could lead to a sudden price drop, sparking panic among smaller investors.
On the other hand, a large buy order can create a surge in price, drawing in investors looking to make an investment return from the momentum.
Liquidity
Liquidity, or the ability to buy or sell without affecting the price, is vital in any market. Whales can improve liquidity by keeping their assets on exchanges where others can trade against them.
However, when whales pull their holdings off exchanges and into private wallets, they decrease the available supply, reducing liquidity and potentially increasing price volatility.
Liquidity effects are especially significant in altcoins or smaller crypto projects, where even moderate trades by a whale can cause big swings in price.
Decentralisation
Cryptocurrency was built on the idea of decentralisation whereby the market isn’t controlled by a central authority.
But the existence of whales challenges this idea.
When a few investors hold a significant chunk of a cryptocurrency, they can hold substantial influence, almost like a centralised authority. While crypto itself remains decentralised, the wealth concentration among whales can sometimes give them outsized influence over a supposedly ‘decentralised’ market.
The Importance of Watching Crypto Whales as an Investor
For everyday investors, keeping an eye on the trading activity of whales can be very insightful.
When you notice significant transactions by whales, it might signal a trend or potential price shift. Tools like Whale Alert track these transactions, providing valuable data on how these big players are moving their money.
If you see a whale buying up a lot of a particular coin, it could indicate that they expect a price increase (or they’re trying to drive one!). On the other hand, if whales are selling large amounts of a coin, it could be a warning sign.
Whale behaviour isn’t a crystal ball, but it can provide a helpful indication of where the market might be headed.
In a market as volatile as crypto, understanding the role of whales and staying on top of their moves can help to make you a more informed investor.
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Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply. Don’t invest in cryptocurrency unless you’re prepared to lose all the money you invest. Cryptocurrency is a high-risk investment, and you should not expect to be protected if something goes wrong.
Standard Risk Statement
The above article is not to be read as investment, legal or tax advice and it takes no account of particular personal or market circumstances; all readers should seek independent investment advice before investing in cryptocurrencies. The article is provided for general information and educational purposes only, no responsibility or liability is accepted for any errors of fact or omission expressed therein. Past performance is not a reliable indicator of future results.
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