What you need to know about Bitcoin whales

29 May, 2019

Every now and again a story discussing a Bitcoin whale circulates throughout the cryptocurrency media universe. One such story recently discussed an unidentified whale who moved a tremendous amount of Bitcoin from one wallet to another. Unless you are a hard-core Bitcoin user, you may not even know what a Bitcoin whale is - let alone why it is important.

Your curiosity of Bitcoin whales is about to be rewarded. This post will tell you everything you need to know about the elusive cryptocurrency creature. Do not be disappointed if you discover that the Bitcoin whale is not nearly as exotic as you thought it was.

Who owns bitcoins

Before we get to the Bitcoin whale, a bit of background information is needed. The starting point is a fundamental understanding of who actually owns bitcoins. Keep in mind that the Bitcoin code only allows for a total of 21 million coins in circulation.

Bitcoins are technically owned by the owners of the digital wallets in which they reside. This is one of the major differences between digital assets and their more traditional counterparts. Ownership of bitcoins is not determined by some sort of purchase order or certificate of authentication. Your ownership rests solely in possession of your wallet.

With that understanding, the following entities act as bitcoins owners:

  • Miners - Those individuals and entities that mine bitcoins are rewarded with coins for the work they do. So they are also coin owners in addition to miners. That is how they make money.
  • Investors - Getting Bitcoin off the ground required a certain number of investors willing to put their money into the platform. In the decades since its launch, more investors have come on board. However, investors are no longer putting cash into Bitcoin. Instead, they are buying up large volumes of coins.
  • Exchanges - Certain exchanges also own bitcoins along with other digital assets. Coin ownership allows them to facilitate trades rather more easily than having to wait on buyers and sellers to transact business among themselves.
  • Payment Processors - Like exchanges, there are some payment processors that take the step of purchasing their own coins in order to facilitate faster conversion between various assets on the network.
  • Vendors - Both vendors and merchants are owners of bitcoins that they receive as payment for goods and services. They remain owners for as long as they hold on to their coins.
  • Consumers - Lastly are consumers. These are the coin owners who typically use their bitcoins to buy things online. One might use bitcoins to play slots on a gambling site while another uses coins to purchase smartphone accessories.

Note that there are no government entities listed here. Nor are their central banks. This is because Bitcoin is a decentralized monetary system. The only way government entities and central banks could become coin owners is to purchase coins like anyone else. Their ownership would not give them any special authority or power to control the Bitcoin network.

The Bitcoin whale

Now that we know who actually owns bitcoins, it is time to talk about the Bitcoin whale. The simplest way to understand the Bitcoin whale is to understand that there are certain coin owners who own disproportionately large volumes of coins. Unfortunately, there is no hard and fast definition to rely on.

Some define Bitcoin whales as the owners of the top 100 wallets by volume. Others follow the same definition but exclude exchanges, understanding that exchanges simply hold their coins as a means of facilitating further exchange. Whether you count exchanges or not does not change the fact that a Bitcoin whale belongs to an exclusive group of coin owners who own the largest number of coins.

You should also know that Bitcoin whales tend to keep their identities anonymous. One such whale, who trades under the name 'Loaded' recently moved the equivalent of USD $211.9 million between wallets in a single transaction. That is a lot of coin to move around. We suspect that owner maintains anonymity for his or her own protection.

Based on media reports and personal admissions, we can speculate as to those individuals and entities that own some of the largest Bitcoin wallets in the crypto universe:

  • Anthony Di Iorio - early Bitcoin investor and Ethereum co-founder
  • Anthony Gallippi - co-founder of BitPay
  • Barry Silbert - founder/CEO of Digital Currency Group
  • Bill Shihara - CEO of Bittrex
  • Blockchain Capital - a well-known venture capital provider
  • Brian Armstrong - CEO and founder of Coinbase
  • Brock Pierce - co-founder of Blockchain Capital and Block.one
  • Changpeng Zhao - CEO and founder of Binance
  • Dan Morehead - co-founder and CEO of Pantera Capital
  • Gavin Andresen - former lead Bitcoin developer
  • Giancarlo Devasini - Bitfinex/Tether CFO
  • JL van der Velde - Bitfinex/Tether CEO
  • Matthew Roszak - founder of Tally Capital
  • Michael Novogratz - founder and CEO of Galaxy Digital
  • Peter Thiel - partner, Founders Fund
  • Roger Ver - a crypto investor also known as "Bitcoin Jesus"
  • Song Chi-Hyung - CEO of Upbit
  • Stephen Pair - co-founder of BitPay
  • Tim Draper - founder of Draper Associates
  • Tyler and Cameron Winklevoss - co-founders of the Gemini exchange
  • Valery Vavilov - co-founder of Bitfury.

How whales amass so many coins

Knowing the definition of the Bitcoin whale would not matter much if said coin owners had no influence on the market. But they do have influence, which is why it is important that Bitcoin owners understand who they are and what they do. Bitcoin whales are gradually amassing more coins to themselves as time goes on.

This is neither right nor wrong in a decentralized economy. The system is set up so as to allow anyone who wants to have the ability to amass coins. The problem here, as with any monetary system, is that amassing coins becomes easier the more coins you own.

So how do Bitcoin whales do it? They buy when everyone else is selling. It is a simple strategy that relies on nothing more than watching bull and bear markets. You respond accordingly.

At the start of a bull market, people are anticipating hefty price increases. What is the result? They buy. More buying increases demand which subsequently increases the price. That is how bull markets work. In a bear market, things are just the opposite.

Prices typically fall in a bear market. As such, casual investors tend to sell off in order to protect themselves against significant loss. Here's where the Bitcoin whale steps in. As sell-offs continue, prices also continue dropping. Whales buy up those coins being sold, getting them at gradually lower prices. And because they have amassed so much wealth, they can afford to spend even though they are doing so in a bear market.

Bitcoin whales know what every smart investor knows: that the bear market allowing them to buy cheap coins will eventually pass and be replaced by a bull. When that bull finally arrives, the whale starts turning a profit on all those coins purchased at lower prices.

Debating the influence of whales

It is difficult to discuss a subject like Bitcoin whales without getting into the philosophical debate over whether their influence is good or bad. You could make the case either way. You could even make the case that their influence is both, depending on circumstances.

The biggest knock against Bitcoin whales is their profit-seeking motives. As the thinking goes, their goal of buying low and selling high creates volatility. Amassing large volumes of coins only adds to that volatility. However it is a tough case to prove. Why? In order for volatility to be persistent, large volumes of coins have to be continuously traded. How much daily trading activity can be attributed to Bitcoin whales?

On a more positive note, others speculate that the influence Bitcoin whales have over the market is mostly good. They believe the whales bring stability to the market by keeping so many coins out of circulation. They also cite the fact that whales continue buying even in bear markets, suggesting that they are solely responsible for preventing the bottom from falling out.

In terms of playing slots online following a bitcoin deposit, identifying Bitcoin whales and what they do is probably irrelevant. The biggest investors in Amazon stock do not really have much day-to-day influence over the millions of people who purchase products from the website every day. There is no reason to suspect that Bitcoin whales have any sort of market influence Amazon investors do not have.

In the long term however, Bitcoin whales will help to determine the value of bitcoins over time. And as Bitcoin gets closer to the end of supply, the wealth amassed by those whales will become more important. That is the real question here.

No one really knows what will happen to the price of Bitcoin once end of supply has been reached. If the bottom falls out, Bitcoin whales will be no better off than casual investors. But if prices hold steady, their wealth could give them primary control over the Bitcoin network from that point forward.