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article imageThe bitcoin 'whales' could create waves in the market

By Ken Hanly     Dec 9, 2017 in Technology
In the context of bitcoin trading the term "whale" is used to refer to players with big money who, according to some, by their actions may "make waves" in the bitcoin market by their huge size and their motions.
Who are the whales?
A recent article in Bloomberg claims that about 40 percent of bitcoin is held by perhaps just a thousand people. These are the whales.
With bitcoin reaching several new record highs lately many of these whales can decide to sell off at least part of their holdings driving prices down.
Aaron Brown who is the former managing editor and head of financial marker research at AQR Capital Management claims that each may want to sell about half of his or her bitcoin holdings. He claims the whales can preview their moves to a select few and even coordinate them. Brown claims that many of the large owners have known each other for years and stuck by bitcoin through the years when it was derided. They can possibly band together to prop up the market or cause a decline.
Note that there are no detailed data on ownership and the alleged thousand large holders. Bitcoin supporters, miners, and others involved with bitcoin are noted for taking different positions on different issues and even fighting among themselves often causing forks in blockchains. They may not be prone to getting together to manipulate the market as they may not agree on the direction the manipulation should take or how it should be done.
Nevertheless, Kyle Samani, managing partner at Multicoin Capital claims: “I think there are a few hundred guys. They all probably can call each other, and they probably have.”
Gary Ross a securities lawyer at Ross and Shulga notes that bitcoin is not a security and their is no prohibition against a trade in which a group has agreed to buy enough bitcoin to push up the price.
Whales are not individuals but institutions
An article at cryptocoinnews claims that institutions such as hedge funds and bitcoin investment funds are the real whales, not individuals.
Some of these institutions have announced that they trade bitcions including: Pantera Capital, Bitcoins Reserve, Binary Financial, Fortress, Bitcoin Investment Trust and several others. There may be others.
The article claims that these funds manage hundred of thousands of bitcoins "which they strategically and covertly put through the exchanges via special arrangement--out of sight and obscured from regular retail traders". If this is true you would not see the transactions listed on the trades list.
The article claims that with their large capital these institutions can move the market at will. They do not do it by huge orders but by dividing a large amount into many smaller orders but to exit large orders can be made.
Of course when smaller fish see a market going up as it is primed by the whales many will join in. And when the whales begin to take profits and the price goes down, many small fish will begin to sell as well. Thus the small fish help the whales move the market in the direction they desire.
The article claims that the practice of the whales is the same as that of hedge funds and large banks in the Forex market and is standard practice there.
Why the bitcoin market is ideal for high risk institutional investors
The article list four main characteristics: small market capitalization; relatively naive participants; no bank competitors, no regulation.
The article concludes that bitcoin trading is a speculators' wildest dream come true yet the market is moved according to the wishes of the whales and all the small fish can do to survive is follow their lead and try to share in the profits.
Is either whale story true?
The second version seems to me most plausible. However, there is no detailed data about how much any of the institutions have in terms of bitcoin and no proof of their colluding with one another. However, some more detailed information can be found in this article that would seem to confirm the cooperation of institutions or at least simultaneous action.
In an email Roger Ver, a well-known early bitcoin investor when asked about the issue said: “I suspect that is likely true, and people should be able to do whatever they want with their own money. I’ve personally never had time for things like that though.”
Ari Paul co-founder of BlockTower Capital wrote in an electronic message: “As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price. In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”
There may be similar attempts to manipulate markets in the stock market and certainly in the forex market. The factors mentioned as to why bitcoin trading is ideal for speculators provides other reasons why such manipulation is easier in bitcoin trading. Greater regulation and greater liquidity could make it more difficult for such manipulation to be successful.
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