What is a Crypto Whale?
Determining who qualifies as a whale in the crypto world is somewhat subjective. Generally, the community views holders of a significant portion of the available coins as whales, typically considered to be more than 10% of the total supply of a specific cryptocurrency.
To further explore the topic of crypto whales, we can gain insight into how these large holders can shape the perceptions and actions of other investors in the market.
A Whale's Effect on Liquidity and Price
Whales, being holders of large amounts of cryptocurrency, can pose a challenge for the crypto market due to the concentration of wealth in their accounts. When coins are not actively traded or used, their circulation reduces, and it reduces the liquidity of that specific currency.
Additionally, whales can trigger sudden price fluctuations, particularly when they move large amounts of cryptocurrency in a single transaction. For instance, when a whale tries to sell a significant amount of cryptocurrency for fiat currency, the lack of liquidity and the large transaction size can cause a drop in the currency's price. This could cause other investors to become cautious and watch for signs that the whale is "dumping" their holdings.
One indicator that investors look out for is the exchange inflow mean, which is the average amount of a particular cryptocurrency being deposited into exchanges. If the average amount of coins per transaction exceeds 2.0, it can indicate that whales are likely to start selling, especially if it corresponds with a large number of whales using the exchange.
In Proof of Stake (PoS) blockchains, whales hold a significant amount of influence in on-chain governance processes as they have more funds at stake, and therefore more voting power. While the presence of whales can be seen as a positive aspect in terms of stability, given their incentives to act in the best interest of the network and help it grow, it can also have negative effects on power centralization if they control the majority of funds.
Is Whale Watching Necessary?
While it is important to be aware of the potential influence that whales can have on the cryptocurrency market, it is not necessary for most individuals to closely monitor their actions. Instead, it is more important to have a clear investment strategy and stay informed about market trends and developments to make informed decisions. Additionally, setting stop loss limits can help protect you from sudden market fluctuations caused by whale activity.
It is not recommended to base your trading strategy on the actions of crypto whales. These large market players have the ability to significantly move the market in both positive and negative directions, and predicting their actions can be difficult. Attempting to trade against a crypto whale during a bull market or following their lead during a bear market can result in significant losses. Instead, as previously stated, it is better to have a well-defined investment plan and stick to it, regardless of the actions of these large market players. This can help you avoid making impulsive decisions and potentially losing money.
Who Are the Big Whales in Crypto?
The identity of these large holders is often unknown, as many use pseudonyms and keep their transactions private. However, some of the most well-known big whales in crypto include early adopters, exchanges, investment funds, and even some governments. They hold a significant percentage of the total supply of a specific cryptocurrency, and their actions can have a big impact on the market.
Some of the publicly-known crypto holders with large amounts of cryptocurrency include Sam Bankman-Fried, Michael Saylor, the Winklevoss Twins, Vitalik Buterin, and Brian Armstrong.
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