A whale of a tale about the influence that the individuals who buy the biggest portions of stocks have.
Stock Market (or Bitcoin) Whale Meaning
The term “whale” can seem confusing at first. Compare the stock market to the ocean. You have lots of small fish and some larger fish, and only a few whales. The small fish could be compared to a regular trader with not too much capital. The whales are the biggest buyers in the market, and they have the most capital. So, when a whale buys or sells a stock, it creates waves in the market that the little fish must deal with.
A whale in the stock market is an individual or group with a large amount of buying power in a particular security, which gives them the ability to artificially manipulate and drive up the price (if they choose to do so).
Many say that whales are market manipulators. This is because their large amount of buying power can artificially drive up a price. Then, when they sell, they can easily crash a stock. Other little fish in the market can get confused by the price skyrocketing and believe that it is organic stock growth. Then, the whale sells, and the little fish panic and sell off their shares, killing the stock price even more.
This phenomenon is less common in the regulated stock market due to higher diversity and the market being matured and expanded. The whale term is popular when talking about cryptocurrencies. This is because the cryptocurrency market is relatively young, and there are a lot less cryptocurrency buyers compared to Wall Street.
For Bitcoin, or BTC, a whale is commonly described as anyone who holds at least 1,000 coins. However, there is no official threshold and traders holding under this number can still greatly affect the price.
Other Stock Market Animals
The trading community loves animals and frequently uses them to categorize a certain type of buyer or market condition. There are bulls, bears, whales, stags, chickens, pigs, rabbits, turtles, sheep, and wolves.
This is an individual that believes the market, or a single stock, will go higher, so they buy and push the price higher.
These are the opposite of a bullish investor. They believe the market, or a single stock, will fall. They usually sell their position as soon as possible to cut their losses. Or, if a stock is bearish to begin with, they will not invest, or they will short the stock. Shorting a stock is essentially profiting from the price falling.
They are the middle ground between bullish and bearish. They look for opportunities such as buying a company’s IPO, or initial public offering and selling as soon as the stock is listed on the market.
Chickens are the lowest risk-takers in the market. They tend to stay away from anything high-risk and will invest in only the safest options.
Pigs are the animals that let greed get to their heads in trading. They generally do not make and profits through the market and are the biggest losers due to their impatience.
Rabbits are quick. They enter the market and leave in a quick amount of time and do not hold positions for a long time.
Turtles are the opposite of rabbits. They are slow in everything they do. They take their time calculating if an investment is worth it and look at a long-term point of view. They also take their time if they’re considering selling.
Sheep simply follow what everyone else is doing. They don’t have their own investment strategy. If someone says, “buy Bitcoin, it’s going to skyrocket!” the sheep does as they’re told.
These are powerful individuals who usually choose unethical options to make money on the stock market. They are usually behind scams.
Bitcoin “Whale” Explanation
The term “whale” was made mainstream due to Bitcoin and the prevalence of whales throughout its market. It is said that the top 20% of individuals that hold Bitcoin have more than 80% of the value of Bitcoin. According to BitInfoCharts, the top 10 bitcoin wallets own 6.03% of all the bitcoin in circulation as of September 2021, and the top 100 wallets hold 15.19% of all bitcoins.
This high concentration can cause huge amounts of volatility in the Bitcoin price. If any of the top holders of bitcoin were to completely sell their share, the Bitcoin price could plummet. This is one of the reasons why some investors believe that Bitcoin is not yet a safe investment. Even if the individuals that hold the most try to sell off their share in smaller amounts, this slight shift in price could cause all the other holders to panic and sell their share, causing a wave of destruction.
Being largely unregulated and relatively small, cryptocurrency markets are more prone to manipulation than traditional markets. Not only is it easier to do, but 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.
“Whales” Are Not Just Exclusive to Bitcoin
Whales can be seen across every trading medium available: cryptocurrency, the S&P 500, the NASDAQ, options trading, forex, futures, and any other you can think of. Whales are unavoidable. However, they make less of an impact on markets that include the most traders and are diversified.
Benefit of Whales
Although many traders absolutely despise whales for their ability to quickly manipulate the market, the presence of whales in a market could grant traders a strategic advantage.
Whales mean volatility in the market. They can drive the price to go wildly up or down, for no apparent reason other than the action of them simply buying or selling.
Here is the benefit of this unstable market movement:
- When large trades cause a market dump, they present an opportunity to ‘buy the dip’ to those sitting on the sidelines.
- If traders are confident prices will recover, they can ride the waves until inevitably, another whale comes along and buys, causing the price to shoot up.
All successful traders are aware of whales and the huge impact they can have on markets. However, this does not make the successful trader give up on a stock or currency. Instead, they know how to use their newfound awareness of the impact of whales to help them profit. Whales can cause huge waves in an instant, but if all the little fish know how to swim, the waters can remain still.