Four Lessons from following the “CryptoWhales” Money

Anyone actively involved with cryptocurrencies and blockchain has likely heard the term “whales” used at least once as the term is primarily used on Crypto Twitter (CT) to describe wealthy individuals who hold considerable amounts of a specific cryptocurrency.

Usually among the “whales” is the founding team of a project, like in the case of Bitcoin, creator Satoshi Nakamoto, who’s known address contains roughly 1 million Bitcoin. This position makes Satoshi possibly the 44th richest person (or entity) in the world at the time. Twitter is a great source of information, but occasionally it has been used by many so-called “influencers” who tend to present themselves as whales of specific cryptocurrencies. While CryptoTwitter’s pseudo-influencers could lie and confuse early adopters in regard to their positions and transactions (or involvement with monetary units, especially in the Initial Coin Offering era), blockchain transactions don’t lie. While the ICO mania has moved on, we have seen a gradual increase of interest in Initial Exchange Offering (IEOs) which are becoming the new trend in the industry, and whales and Twitter shillers have awakened again!

Whales typically have resources like research teams, data analysts, and premium pitching of early startup projects and following their transactions can provide useful insights for investors looking to learn from their investment mistakes without considerable consequences that many retail investors make.

We have analyzed transactions made by crypto whales in numerous top-10 cryptocurrencies to understand their trading behaviour. It’s important to mention that many of these wallets do not belong to individuals, but rather to investment entities and exchanges, so our results have been narrowed down to those who we believe belong to individual investors based on the volume of transactions and behaviour, though it should be said that the accuracy of such metrics is fragmented.

In the financial services sector- one famous regime is “Put one’s money where one’s mouth is” indicating that you need to follow those who risk their own money while they recommend a project. Shilling projects through Twitter (especially paid trolls and influencers) has been very popular in the crypto-scene. On the opposite, blockchain as a public ledger, its public verifiable, so we believe that following the investment behaviour of whales could indicate opportunities and offer generous lessons to crypto investors comparing to social media influencers. One of the most popular “alerts” to follow such transactions in real time is the Whale Alert Twitter account which tracks large crypto transactions to and from exchanges for BTC, ETH, XRP, USDT, EOS, XLM, NEO, TRX, XTZ, and the top 100 ERC20-based tokens.

Single transactions could cause confusion to a retail investor since transferring 40,000 ETH ($6.5 million) to an exchange could lead one to invest in ERC-20 tokens instead of selling, so it’s highly unlikely that monitoring the behaviour of crypto whales in real time will produce concrete results. Other trackers include but are not limited to the open-source project WhaleWatch, which sends real-time notifications at the time of each transaction. According to the analysis of ChainAnalysis, a whale is identified as an individual with more than $56 million in Bitcoin.

1st Lesson: April 2019 witnessed the awakening the crypto-whales. Whale’s buying volume increased after November’s all-time-high for the examined period:

Analyzing the graph of the last six months shows that even though that November was the busiest, we notice an increase of Whales buying volume during the middle to end of April which potentially indicates a ‘break’ from the long crypto winter.

A similar graph also shows that whales accumulated more crypto from what they have collectively sold- making the industry more concentrated- which means that in a way they have “protected” the market, while retail investors have been proven to be the weak hands.

Of course, this is a basis for contrarian investing traders, an investment school of thought which springs from Baron Rothschild, an 18th-century British nobleman who is credited with saying that “the time to buy is when there’s blood in the streets.” Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

Research firm Weiss Ratings reports at the time of price recession of January and February 2019 100 of the largest BTC wallets accumulated an additional 150k bitcoins. They did this most likely to sell at the peak and then buy back in at a lower price as the analytics firm suggests.

Lesson 2: Bitcoin Whales are not a significant threat to crypto prices

In their webinar, “Who are today’s Bitcoin and Bitcoin Cash Whales”, Chainanalysis categorized whales into three different categories: criminal whales, early adopter whales, and trading whales.

Among the findings is that Bitcoin Cash whales on average hold about 250% of the crypto that regular Bitcoin whales hold, indicating a higher concentration of the cryptocurrency.

Crypto Whales collectively own less than 10% of the current total market capitalization of Bitcoin. Even though a coordinated sell-off would have a downwards price movement, taking into consideration that up to 2.5 million BTC change hands every day on exchanges. Most whales selling Bitcoin expect to have a lower entry point- buying cheaper and try to increase their holdings. Quoting the same report findings, ChainAnalysis argues that “criminal whales” who have made their money from darknet markets, don’t actively sell like trading whales, which is why they use their wallets only when it’s necessary avoiding to leave any tracks.

Despite the decline in demand from retail investors, crypto whales have still been investing via over-the-counter (OTC) deals, as explained by a

Morgan Stanley report. At the same time Circle, one of the leading OTC desks claims that they handled more than 10,000 OTC trades in 2018 and a monthly trading volume of $2 billion.

On the other hand, a report from Reuters explained that April’s 2019 BTC massive pump above the price of $5,000 is due a 20,000 BTC buying spree executed simultaneously on Coinbase, Kraken, and Bitstamp.

Analysts believe that whales now will have a larger incentive to begin spot trading to influence the price on crypto exchanges.

Lesson 3: BTC whales participate in the funding of new blockchain projects via IEOs and donate in charities

Through analysis of recent trades, we have discovered BTC whales which are investing in IEOs. For example whales apparently were recently drawn to a blockchain investment-based services called Roobee which utilizes AI and offers transparent public verifiable statistics to help investors build and manage investment portfolios.

The startup recently announced that an investment of $1 million worth of BTC came from a prominent whale wallet. Characteristically the whale signed the transaction with the message “In RooBee I Trust” and at the same time Roobee co-founder Artem Popov told Forbes that Roobee’s goal is to “provide retail clients with the same investment opportunities and level of security as the largest financial market players, wherever in the world they are and no matter what their capital stands at, even at $10.”

It’s important to mention that Bitcoin whales are not only looking for investment opportunities, but they are also supporting charities, with the most recognizable example being the Pineapple Fund which has donated $55 million Bitcoin to charities because they believe that ”once you have enough money, money doesn’t matter”.

The Pineapple Fund was an experiment in philanthropy with cryptocurrency wealth and more than 10,000 applications for support from different philanthropies were received. Their website anonymously listed various Bitcoin whale donations and another major giver in the area is the charity operated by Binance.

Lesson 4: It’s not an easy journey to dump stolen cryptocurrencies from whale hackers

The notorious hacker who has pilfered more than 100,000 Bitcoin from Bitfinex back in 2016, has recently started to transfer 550 of the stolen BTC that were not recovered thus far. With so many eyes looking at the stolen crypto, a Reddit user with username ‘Jankeldidi’ has discovered that stolen crypto worth nearly $3 million was in motion on April 2019. The BTC has been transferred to multiple addressed as indicated in this spreadsheet. Many Reddit users have commented in the post that this could have been an inside job or have expressed their concerns in regard to the hacker identity which coincidences with the NY AG decision in regard to Bitfinex and Tether bookkeeping challenges.

Of course, those are speculations and not any such proof has been discovered, nor the writer adopts such opinion.

Tuur Demeester, managing director at Adamant Capital, speaks during the Consensus: Invest event in New York, U.S., on Tuesday, Nov. 28, 2017. (Michael Nagle/Bloomberg)

As summarized in Adamant Capital’s research published on April 18, BTC whales have increased their accumulation of cryptocurrencies. If we were to capture a current market sentiment in one word, it would be “hope” as analyst Tuur Demeester recently wrote. The same report also suggested that additional risks which could affect cryptocurrency prices could be Bitcoin exchange hacks, technical failures, macro-economic downturn, secondary Bitcoin mining capitulation, cryptocurrency forks, and a potential regulatory crackdown.

Market fluctuations shape asset ownership from “weak hands” to “strong hands” who can handle volatility and price downturns. The progress of BTC financialization will drive more institutional investors in the industry with notable leaders to deliver among others: Nasdaq Bitcoin futures, and CME Bitcoin futures. Goldman Sachs has also invested in crypto custodian BitGo, while Fidelity Digital Custody Services has already undergone a soft launch.

Bitcoin Whales seem to HODL and committed in the development of the industry for the long term again.

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You can connect with Nikolaos through LinkedIn or follow his Twitter feed.

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