The top 500 hundred holders of cryptocurrency are considered ‘whales’. Because the amount of crypto they hold represents significant portions of circulating coins, when they make moves it can send tidal wives over the crypto markets causing prices to swing with extreme volatility.
The disproportionate power these crypto whales have creates many problems deeply rooted in the crypto industry, especially if you consider extreme volatility and price manipulation are keeping many mainstream investors at bay. Despite its industry-wide impact, the solution is actually quite simple. All it takes is a further distribution of assets and recognizing whale activity.
But first, let’s analyze the dynamics caused by whales and how they can manipulate the markets.
Triggering panic sales
There are whales lurking in the deep end of every crypto market. For example, if you’ve ever seen the price of Bitcoin drop violently, even though there were no recent developments that could trigger such a decline, you have seen what happens when whales put their immense power to work.
The price drop usually triggers a further sell-off, with even the most fanatic HODLers facing such dramatic price swings selling a portion of their BTC holdings – just to be safe. People incorrectly assume whales know something the majority doesn’t know yet, and in anticipation of the news hitting the wires, they start selling assets. That’s exactly the psychology whales are playing in to. All they are interested in is driving the price down so that can buy the same assets at a much lower price to profit from the eventual recovery.
The tactic is called ‘rinse and repeat’. Whales force the price down for a cryptocurrency, with the aim to create a selling panic. They sit back for a while as markets scramble for cover, and then buy the same assets again. On a single crypto exchange, you can see quite easily that the initial selling is originating from a single trader or a select few. To disguise their tactics, whales typically sell and buy the cryptocurrency across multiple crypto exchanges.
Either way, when you see the price drop over 10% in mere minutes for no obvious reason and you sell some of your assets in anticipation of bad news, you have become a victim of this scam.
Freeing crypto from the whales
This type of scam is not unique to cryptocurrency, but it does have a lot to do with the maturity of the crypto industry. When Bitcoin was just a couple of dollars, and very few people were buying BTC, any significant amount you would have invested then, now constitutes a huge part of circulating supply. So, you would’ve been able to achieve whale status quite easily if you got in very early. Today, becoming a Bitcoin whale requires millions of dollars. That’s not so easy.
The way to free crypto from whales requires 2 things: further distribution of funds and recognition.
As more new people buy BTC for example, the proportion owned by whales will slowly dilute, which means over time there will be less whales altogether. We can’t take Bitcoin away from whales, but we can buy it from them and then not sell it back to them. And when are whales selling? That’s right, selling is the first step in their rinse and repeat tactic.
What we need to do when whales are trying to trigger a selling panic, is recognize the activity, lean into it, and buy. Buying their assets prevents both the dramatic drop that would cause panic in the markets, and it dilutes their proportional holdings of the asset. If we do this for long enough, the market will balance itself out and there will be less whales with the power to move markets at will, providing a clear signal to mainstream investors that crypto trading has entered the next stage in its evolution.
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