Bitcoin tumbled overnight, dropping around fourteen percent within a few hours from around $8,500 to $7,700. With it fell the wider crypto market, as altcoins joined in on the freefall.
Whales, a colloquial term for well-financed traders, have been part of the scenery since bitcoin was invented. They play a significant impact on crypto markets, as large movements often cause a domino effect of panic selling or buying, especially by trading bots.
Most traders have become accustomed to these financial leviathans, which remain a highly disliked species. But as long as there’s money to be had, whales aren’t going away any time soon.
With markets now bloodier than the ending of Moby Dick, this might be an opportune time to evaluate the mixed benefits which these creatures bring to the ecosystem.
What Just Happened?
Online gossips linked the recent drop to several heavy whale movements, around half an hour before the sell-off began. The first move was a 25,000 BTC movement to Coinbase.
That was followed by a withdrawal of exactly 14,000 bitcoin. Then, 11 thousand more bitcoin was moved from Coinbase to another wallet, and exactly ten million USDTs moved between wallets fifteen minutes later.
A panic sell-off ensued, wiping fourteen percent from the price of bitcoin and causing similar drops in most altcoins.
The Good
When large trades cause a market dump, they present an opportunity to ‘buy the dip’ to those sitting on the sidelines.
In the solemn words of future President John McAfee:
Again – "Buy the f-cking dip". It will rebound the market. Oh, I'm also obligated to promote Substratum (SUB) and Insurepal (ipl) today. So I just did. Which I would do without the obligation. I helped both. So you know they're good. Watch and rebound:https://t.co/L2BOajm0YM — John McAfee (@officialmcafee) January 24, 2018
An artificial 14% discount represents a chance for small traders to make easy profits, if they are confident prices will eventually recover. Whales are too large to combat directly, but individual hodlers can ride the waves they create.
Supply And Demand Pressure
Furthermore, all healthy markets need short sellers in order to ensure efficient price discovery. Deliberately dumping bitcoin to create a sell-off is not the same as short selling, but in a market like this one it may have a similar effect.
Today’s cryptocurrency market offers relatively few ways to bet against bitcoin. Whales’ ability to create downwards pressure leads to a healthier market, with bearish and bullish sentiment baked into the price.
Moreover, those big traders also help price discovery. While crypto exchanges often report significant differences in bitcoin prices, most traders do not have the resources to profit from those variations. By arbitraging prices across exchanges, large traders help ensure that crypto prices remain consistent in each marketplace.
One can’t help adding that it’s slightly hypocritical to complain about whale manipulation driving prices downwards, since hodlers also enjoy the benefits of whale-related price surges. Most digital asset participants hold long positions, so whereas dips can be painful, everyone gets to enjoy the sudden rises. And 2019 has been particularly kind in that regard.
The Bad
Crypto markets are not the only markets that suffer the scourge of manipulation. Large and influential traders are in every market, even tightly regulated ones. High-frequency traders on Wall Street have been quote stuffing and front-running client orders for years, and those who get caught are in a minority.
For large players, markets are easy to manipulate. Crypto markets are smaller, and therefore even easier to manipulate. Unfortunately, undue influence will always be an inevitable part of any market.
The Ugly
Being largely unregulated and relatively small, cryptocurrency markets are more prone to manipulation than traditional markets. Not only is it easier to do, there are also fewer consequences. Crypto markets are also more open to newer or naive traders, who are more likely to panic when the market tanks.
Manipulation is an inevitable growing pain of cryptocurrency markets and it is like to fade as the markets mature and expand. As long as traders are driven by fear and greed, crypto markets are unlikely to escape the tail flaps of the whales any time soon.
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