Last month, we asked whether a whale had sunk bitcoin following a sharp and sudden decline for the world’s leading digital currency. As it turns out, these oversized holders could be playing a vital role in stabilizing the market.
New research by Chainanalysis purports to show that bitcoin whales have a stabilizing role in the market and that fear over lop-sized control of transactions is likely overblown. Although large stakeholders can influence price action by buying or selling bitcoin in large amounts, most of them aren’t active traders anyway. Those who do trade are more likely to play against the herd by purchasing bitcoin on price declines.
The conclusions drawn by Chainanalysis follow a careful examination of bitcoin’s 32 biggest wallets.
“Our data demonstrates that Bitcoin whales are a diverse group, and only about a third of them are active traders,” the group said in a new report. “They appear, in aggregate, to have stabilized the market during recent price declines, rather than exacerbating price movements. This makes sense since these trading whales are professionals with no vested interest in abruptly tanking the market. When they require liquidity, traders are likely to use OTC trading platforms equipped to manage large transactions with minimal market disruption.”
In August, the 32 wallets in question were collectively valued at $6.3 billion. Nine of these wallets belong to new market entrants who control 332,000 BTC, or $2 billion in market cap at the time. Another 15 wallets holding the same amount of BTC belonged to miners – another group with no vested interest in toppling the market. (As Hacked previously reported, miners typically require a price-per-coin of $6,000 just to break even.).
“Lost whales,” as Chainanalysis describes, accounted for roughly 212,000 BTC, or $1.3 billion. This group has no transactions going all the way back to 2011. In other words, their owners lost their private keys.
The last and smallest group in the taxonomy are criminals, who comprise just three wallets collectively valued at 125,000 BTC or nearly $790 million. Two of the three have been linked to Silk Road, a former dark net portal involved in money laundering and other illicit behavior.
The findings presented by Chainanalysis suggest bitcoin whales are more likely to stabilize the market than sink it. After all, less than a third of these oversized holders are actively trading bitcoin, which means the rest have had a minimal impact on price action. That most whales are “hodling” bitcoin (whether deliberately or not) is a clear sign that they are not influencing the market as much as previously expected.
However, this doesn’t mean that whales haven’t contributed to bitcoin’s volatile trading patterns. It’s conceivable that an oversized sale of BTC on a major exchange could lead other traders to offload their positions over fear of further declines. A fire sale by any of the above wallets could lead to a noticeable drop in bitcoin’s price, which may invite further downward pressure, especially if a technical support is breached.
It’s important to note that bitcoin’s overall volatility has been in steady decline all year long – a phenomenon that may have been catalyzed by the introduction of futures trading last December. In fact, bitcoin’s volatility index, which tracks daily price fluctuations of BTC, has been routinely hitting fresh yearly lows. The 30-day volatility tracker earlier this week reached a low of 1.56%, the lowest since May 2017, according to bitvol.info.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.