One of the most oft repeated fundamental drivers for the recent meteoric rise of Bitcoin has been that “Whales are on the move”. A subset of analysts are glued to the goings on in these highly valued crypto addresses, euphemistically referred to as “Whale” accounts, as if their splashing around could singularly drive the ebbs and flows of the Bitcoin tide. Who is to say if they are right or wrong? The proffered theory is quite plausible: Whales ostensibly hoard Bitcoins to reduce liquidity, so that when any ripple of demand occurs, prices skyrocket. These so-called Whales also hold for the long term, because they know the reward will be there, as it was in 2017.
There is a convergence of anywhere from a dozen fundamental drivers in Crypto-Land, such that, at some point, or so the story goes, “FOMO” will ignite. Speculation mania will return, as it did in 2017, driving asymptotic price behavior through the proverbial roof, at which time Whales will sell and then short to the max. A new “Crypto Winter” will ensue, driving prices to the floor at which time the dutiful Whales will hoard once more for another repeat performance. It is a very convincing storyline, if you buy into this logic.
What is the normal investor to do? We have heard the story many times over in equity markets where the hype of riches to be had finally reaches avid consumers, who are usually very late to the party. Once stocks peak, the professionals, who are very adept at manipulating the market, close their positions and leave poor “Joe Public” holding the bag. There have actually been a few references to the poor “Joe’s” that bought high, when Bitcoin nearly reached $20,000. Analysts believe that these “bagholders” or “baghodlers”, if you prefer, never liquidated their losing positions and have been waiting in earnest for Bitcoin to establish a new ATH, i.e., All Time High.
This reasoning suggests that there will be formidable resistance every step of the way, once Bitcoin gets into the high teens, as in $15,000 and up. This prediction does make sense, but analysts are more concerned about the machinations that could erupt with the all-powerful Whale population. According to these folks: “Owners of “whale wallets” scooped up 450,000 BTC as the bitcoin market hit bear-market lows in late 2018. It appears whales now control 25% of all BTC.”
Is this simply industry “paranoia” or is there an obvious example in another industry that supports this line of reasoning? Analysts point to the diamond market for clues. The claim here is that DeBeers, the UK-based diamond cartel, invented this market tactic, and no one has ever challenged the diamond giant to change its ways. You may substitute “Whale” where you wish, but DeBeers has been known to control the diamond market from mines to retail by hoarding supply, hyping the need of diamonds on a global basis, and then riding the “scam” or marketing miracle to the bank big time. It also helps to have an 85% market share of the vertically integrated components of the business.
If Whales are following a similar strategy, what should traders and investors do? If there is a repeat, as in 2017, could you hold onto your “bag” once more until BTC regains its fame? Those in the know are doubtful: “It’s possible but unlikely. Most securities get one big parabolic rise in their lifetime. Twice is an outlier. Three times would be almost unprecedented.”
This type of market price manipulation tactic is bad for Bitcoin and bad for all crypto investors. Hopefully, the advent of institutional quality monitoring controls and an active futures markets will make this type of tactic worrisome for the Whales. If the SEC would make a public spectacle of these machinations by one “bad actor”, it might help the cause, but in the meantime, curb your greed, do not buy after a true parabolic rise, and be happy with closing a position that yields a respectable return.