Bitcoin Whale Theory v1.0

[legiteum]

Everybody wants to know what Bitcoin's price is going to do next, and there are a lot of theories and conceptual frameworks out there that try to make a prediction.

So with that, let me offer my theory: Whales.

This theory rests on the assumption that a very small number of controlling entities (individuals, corporations, governments) own a very large portion of the real Bitcoin supply. (The breakdown of Bitcoin ownership is a subject unto itself, and there are various ways of estimating this, but suffice it to say that since an individual can easily control 1M wallets, simply counting wallets doesn't mean anything, for instance).

But for the theory here, I'll just stipulate that there is a small pod (sorry) of Bitcoin Whales out there who act in coordination. This would be a loosely coordinated group that would probably act in a similar way based on human nature, e.g. maximizing their profits.

The next aspect of the theory here is this: that these Whales, wherein they own a large portion of the available supply, and also have complete flexibility with their holdings, and use their market power to manipulate the market in order for them to maximize their long(er)-term profits.

So with these assumptions, what would this mean for the price of Bitcoin going forward. In other words, if you were one of these Whales... what would YOU do? How would you act to maximize your investment? What would be the strategy?

While this can get pretty complicated, I'll offer a few points that I think hold true given these assumptions:

1. A Whale would not simply dump all of his holdings because that would crash the market and be counter-productive.

2. A Whale would want to leave his holdings and trade for real-world assets like real estate and companies at least partially, if not entirely.

3. Thus, a Whale would want to keep the price of Bitcoin as high as possible while at the same time reducing their own exposure to Bitcoin.

4. A Whale, having an understanding of how markets work, and living in a "pod" of other Whales that they would be in coordination with (either directly, in a personal way, or using market telemetry i.e. tools to track the movements of the other Whales), will be able to understand and execute very significant market manipulation.

5. That manipulation only goes so far, as the longer-term arbiter of the price is consumer investor demand for Bitcoin.

6. Because of this, Whales would do what they could to increase consumer demand of Bitcoin, and these Whales, being billionaires, would have a lot power to promote the purchase of Bitcoin to investors (direct marketing, media capture, regulatory capture, influencers, and so on).

7. This effect is accelerated by the fact that, unlike (say) normal securities, there are no regulations stopping any sort of clandestine promotion--i.e. no disclaimers saying, "Full disclosure: I own Bitcoin" by influencers like they must do for stocks for instance.

8. Besides direct promotion, Whales would also promote Bitcoin indirectly by manipulating the price: making sure the price level didn't fall too drastically to spook the market, and then pumping up the price to get the excitement going, and so on (and doing this in coordination with with the other activities, for instance timing a big market purchase with a meeting at Mar a Lago or supporting the market during period of negative news).

To be fully transparent, I would say that my theory has one major difficulty: coordination among the Whales. Imagining a smoke-filled room of "the Whales" who all decide on a daily basis as to what to do is far-fetched. The default assumption should be that, even if there are a small number of Whales, they are still individuals who probably act alone. The counterpoint to this would be that: a) the number of Whales is really small, or even that there is a single Whale who alone can manipulate the market, or at least take the lead in doing so; or b) related to that and point #4 above, lesser Whales would have sophisticated tools (they are billionaires, remember, and can hire a full-time staff just to watch their Bitcoin investment), and thus understand all of this, and track the movements of the other Whales, and/or the King Whale in order to make sure they move their holdings in coordination because they would benefit in doing so.

So with all of that in mind, what should an investor in Bitcoin do?

Answer: go whale watching. Every day. Build whale-watching tools based on the public blockchain. If Whales determine the price of Bitcoin, then watching what the whales do can be very profitable. (Of course you could argue that if the Whales start getting watched in a significant way, then their ability to manipulate the market would diminish).

The other thing you would do is wonder about the macro situation: what if some or all of the Whales... panicked and dumped their holdings? Obviously that would lead to a market crash--one which would hurt the Whales more than anybody else--but what if they were lead to believe that they had no choice e.g. that the price was never again going to go up?

Interestingly, the Whales make the case for both stability (they have an interest in the market moving in a stable way to increase long-term sentiment), but also add  catastrophic downside risk.

It's all very interesting stuff to think about. I look forward to comments, criticisms, and additions to this theory.

[Mia Chloe]

~snip

Most of these things are basically standard economics. If you can't actually control the network itself you can partially force centralization of price to a considerable extent and it's why you see these companies and institutions trying as much as they can to HODL more including the government too.

There are flaws to every system and even if bitcoin hardly has any a limited supply is actually the perfect condition to centralize price to an extent and you can see that in so called precious stones and metals too. Scarcity can be a delusion sometimes and simultaneously can be used as an advantage.

[legiteum]

~snip

Most of these things are basically standard economics. If you can't actually control the network itself you can partially force centralization of price to a considerable extent and it's why you see these companies and institutions trying as much as they can to HODL more including the government too.

There are flaws to every system and even if bitcoin hardly has any a limited supply is actually the perfect condition to centralize price to an extent and you can see that in so called precious stones and metals too. Scarcity can be a delusion sometimes and simultaneously can be used as an advantage.

You bring up an interesting point, which is that if Bitcoin's ownership is as concentrated it I think it is, then it's not very... decentralized, at least from the standpoint of its marketplace.

One important difference between Bitcoin (and crypto generally) and traditional commodities is that in the crypto world there are zero regulations. If you engaged in market manipulation of other things then you'd likely get in trouble, but with Bitcoin there is probably no such fear.

[legiteum]

Here's a little Whale news:

https://www.tradingview.com/news/cointelegraph:c2b9c3fc4094b:0-bitcoin-whales-participate-in-v-shaped-accumulation-offsetting-230k-btc-sell-off/

The definition of "whale" in this story is different than the OP, but I like the idea of "following the whales" when it comes to predicting Bitcoin futures.

[ContentWriter]

Everybody wants to know what Bitcoin's price is going to do next, and there are a lot of theories and conceptual frameworks out there that try to make a prediction.

2. A Whale would want to leave his holdings and trade for real-world assets like real estate and companies at least partially, if not entirely.

So how would the whale manipulate the market if they don't dump and buy back after dumping if they're just trading other assets?

3. Thus, a Whale would want to keep the price of Bitcoin as high as possible while at the same time reducing their own exposure to Bitcoin.

Not necessarily a good assumption. Not even a whale interested in market manipulation wants Bitcoin price as high as possible. Your theory of a whale community in contact makes no sense if that is the case. If whales are to grow their advantage, the only sensible approach is direct manipulation of the market by dumping and buying when the market panics.

4. A Whale, having an understanding of how markets work, and living in a "pod" of other Whales that they would be in coordination with (either directly, in a personal way, or using market telemetry i.e. tools to track the movements of the other Whales), will be able to understand and execute very significant market manipulation.

There is no way  to understand and execute very significant market manipulation without the coordination, so I agree with this point.

5. That manipulation only goes so far, as the longer-term arbiter of the price is consumer investor demand for Bitcoin.

I wouldn't say I completely understand what you mean here, but whatever.

6. Because of this, Whales would do what they could to increase consumer demand of Bitcoin, and these Whales, being billionaires, would have a lot power to promote the purchase of Bitcoin to investors (direct marketing, media capture, regulatory capture, influencers, and so on).

This makes sense, though I don't see how they've done this in practice. Bitcoin became popular mostly because criminals, ponzi scheme operators and the like drew the attention of governments and law enforcement agancies to it. Then some governments saw its potentials and embraced it through instruments like ETFs.

~snip~

8. Besides direct promotion, Whales would also promote Bitcoin indirectly by manipulating the price: making sure the price level didn't fall too drastically to spook the market, and then pumping up the price to get the excitement going, and so on (and doing this in coordination with with the other activities, for instance timing a big market purchase with a meeting at Mar a Lago or supporting the market during period of negative news).

This has been overflogged already.

~snip~

Answer: go whale watching. Every day. Build whale-watching tools based on the public blockchain. If Whales determine the price of Bitcoin, then watching what the whales do can be very profitable. (Of course you could argue that if the Whales start getting watched in a significant way, then their ability to manipulate the market would diminish).

The other thing you would do is wonder about the macro situation: what if some or all of the Whales... panicked and dumped their holdings? Obviously that would lead to a market crash--one which would hurt the Whales more than anybody else--but what if they were lead to believe that they had no choice e.g. that the price was never again going to go up?

Interestingly, the Whales make the case for both stability (they have an interest in the market moving in a stable way to increase long-term sentiment), but also add  catastrophic downside risk.

It's all very interesting stuff to think about. I look forward to comments, criticisms, and additions to this theory.

I think whale watching is a waste of time. The commonsense thing to do is move opposite the market if you're confident that it is manipulated. When investors are spooked is when you should be confident. When they're confident is when you should be skeptical. Simple.

[legiteum]

Everybody wants to know what Bitcoin's price is going to do next, and there are a lot of theories and conceptual frameworks out there that try to make a prediction.

2. A Whale would want to leave his holdings and trade for real-world assets like real estate and companies at least partially, if not entirely.

So how would the whale manipulate the market if they don't dump and buy back after dumping if they're just trading other assets?

Presumably they would dump a little more than they bought back over time.

3. Thus, a Whale would want to keep the price of Bitcoin as high as possible while at the same time reducing their own exposure to Bitcoin.

Not necessarily a good assumption. Not even a whale interested in market manipulation wants Bitcoin price as high as possible. Your theory of a whale community in contact makes no sense if that is the case. If whales are to grow their advantage, the only sensible approach is direct manipulation of the market by dumping and buying when the market panics.

Yes, but again, they would dump at a high price, panic the market, and then buy back 80% of what they dumped which could panic the market back to the previous level. This would be especially effective if you did this in concert with other promotional activities. I'm certainly no expert at market manipulation, but with a huge chunk of the supply under your control and millions of dollars to hire a staff of full-time superstar experts, this doesn't sound very hard.

6. Because of this, Whales would do what they could to increase consumer demand of Bitcoin, and these Whales, being billionaires, would have a lot power to promote the purchase of Bitcoin to investors (direct marketing, media capture, regulatory capture, influencers, and so on).

This makes sense, though I don't see how they've done this in practice. Bitcoin became popular mostly because criminals, ponzi scheme operators and the like drew the attention of governments and law enforcement agancies to it. Then some governments saw its potentials and embraced it through instruments like ETFs.

To run up the price to a market cap of over $1 trillion, you need a lot more than criminals--you need mainstream consumer investors.

I think whale watching is a waste of time. The commonsense thing to do is move opposite the market if you're confident that it is manipulated. When investors are spooked is when you should be confident. When they're confident is when you should be skeptical. Simple.

Yes, but... that's whale watching . If you understand what is going on in the market because of these moves, you can time your own moves much better.

For instance, if you see a big dip, you can count on the whales to try to de-panic the market and bring it back up somewhat, so you should buy that dip and then sell quickly after that before they themselves sell.

[DanWalker]

Yeah, big holder or whale do have an impact on the price cant deny this but it is in the shortterm because they own a large portion of Bitcoin. But that does not mean they control the entire market by setting up a secret club or syndicate. In my opinion each whale is actually a separate investor or institution who make move based on their own profit and loss. It is not a coordinated mastermind club that everyone press the same button exactly same time

You may get a signal by looking at the movement of a big wallet but it would not be right to rely on it like your Gospel. Actually ladoption trend is the main factor which created longterm demand and the importance of million of individual user holding Bitcoin is much greater than the the move of a few wallet. Because if the whale go to do reverse manipulation then they themselve also have a huge risk of getting caught

[Moreno233]

Interesting post with lots of information. I have also seen a new perspective to what it takes to be a whale and how the participate in the market. One aspect that did not make sense to me is the point that you a whale can't just dump all their holding as that will be counterproductive.  I beg to defer on this a little because in terms of practicality, if a whale is sure that he will be able to move the market, nothing stops him from dumping his entire holding to crash the price and buy it back at lower prices thereby making a lot of profits in the process. For low cap coins, their whales do this repeatedly and profit from the process. I know Bitcoin requires lots of capital to do this due to the marketcap and for the fact that there are many whales in the market so no single one would want to expose their capital to elevated risk.

[legiteum]

Yeah, big holder or whale do have an impact on the price cant deny this but it is in the shortterm because they own a large portion of Bitcoin. But that does not mean they control the entire market by setting up a secret club or syndicate. In my opinion each whale is actually a separate investor or institution who make move based on their own profit and loss. It is not a coordinated mastermind club that everyone press the same button exactly same time

You may get a signal by looking at the movement of a big wallet but it would not be right to rely on it like your Gospel. Actually ladoption trend is the main factor which created longterm demand and the importance of million of individual user holding Bitcoin is much greater than the the move of a few wallet. Because if the whale go to do reverse manipulation then they themselve also have a huge risk of getting caught

I agree the Whales probably aren't directly connected--although it's also possible that a single entity owns a huge percentage of the liquid market. But as I mentioned above, I think it would be fairly easy for the whales to communicate with each other (call it market sonar ), and coordinate their actions. Remember these whales have $millions per year to pay a staff of expert market watchers and to buy sophisticated tools (this alone makes it so small investors simply have no chance).

Interesting post with lots of information. I have also seen a new perspective to what it takes to be a whale and how the participate in the market. One aspect that did not make sense to me is the point that you a whale can't just dump all their holding as that will be counterproductive.  I beg to defer on this a little because in terms of practicality, if a whale is sure that he will be able to move the market, nothing stops him from dumping his entire holding to crash the price and buy it back at lower prices thereby making a lot of profits in the process. For low cap coins, their whales do this repeatedly and profit from the process. I know Bitcoin requires lots of capital to do this due to the marketcap and for the fact that there are many whales in the market so no single one would want to expose their capital to elevated risk.

I would think a Whale would be incentivized to play the long game. Imagine you held, say, $100B in Bitcoin and you wanted to bail out of it, or at least diversify. With that much of the supply, you would need to be very careful in order to maximize your yield. It would take months to get rid of even a few percent of Bitcoin with seriously affecting the market. Indeed, if you were crazy and just wanted to crash the market to zero, you could just dump a few $billion on the market in the middle of the day and watch the fireworks . There would simply not be enough buyers to absorb the supply, and then the market would panic when the price level dropped, triggering even more sell-offs*.

Instead, I would imagine a whale's task is a multi-year project, dumping enough to get rid of some of their holdings at a higher price, then buying some of it back to keep the long-term confidence in the product stable, then dumping some more, and so on.


(* In another thread, we should all discuss the effects of the leverage markets like Hyper Liquid, and what this does to the markets, because I think that's very significant as well).