Who Are Bitcoin Whales and How Do They Trade?

While digital assets theoretically help facilitate a level playing field for individuals, in distributed networks such as Bitcoin, some people have more leverage and influence than others: whales.

Bitcoin whales are people or entities that hold enough Bitcoin to influence or even manipulate the value of the currency. The bigger the price movement, the bigger the whale. 

According to data from BitInfoCharts, the 10 largest BTC wallets control 6% of all Bitcoin in circulation, representing roughly $50 billion, while the top 100 wallets hold nearly 15% of all Bitcoin ($124 billion). 

To fully grasp Bitcoin’s price movements, it’s important to know who these Bitcoin whales are and how they operate.

Who are some of these whales?

Bitcoin addresses provide users with some anonymity. Therefore, reverse-engineering the identities of influential wallets, while not impossible, isn't always easy. That said, Bitcoin whales can be divided into four general groups:

• Exchanges: Cryptocurrency exchanges have steadily increased their stores of BTC over the years, making them some of the largest centralized owners of Bitcoin. They do so to increase their liquidity and allow more trading. A 2019 analysis by TokenAnalyst found that an estimated 6.7% of Bitcoin in circulation was held on exchange wallets. As evidence, four of the six largest Bitcoin wallets belong to Binance, Bitfinex, and OKEx.
• Institutions: This category can be subdivided into other groups, such as for-profit companies and funds representing accredited investors. One of the biggest holders of Bitcoin is digital asset manager Grayscale, a subsidiary of Digital Currency Group. It oversees $29 billion worth of Bitcoin—over 3% of the current market cap. With 654,600 Bitcoin on hand to back investors’ dollar contributions, Grayscale Bitcoin Trust is the largest Bitcoin fund in the world.

• Individuals: Several prominent individuals bought Bitcoin early, when it’s price was much lower than today. The founders of cryptocurrency exchange Gemini, Cameron and Tyler Winklevoss, are believed to have invested $11 million in Bitcoin in 2013 at $141 per coin. That would make their assets, about 78,000 BTC, worth around $3.5 billion today. American venture capitalist Tim Draper purchased 29,656 coins at $632 apiece at a U.S Marshal's Service auction. His trove is worth over $1 billion. Digital Currency Group founder and CEO Barry Silbert attended the same auction and acquired 48,000 Bitcoin, now worth $2 billion.
• Satoshi Nakamoto: Bitcoin’s pseudonymous creator, Satoshi Nakamoto, deserves his own category. Leading cryptocurrency researcher Sergio Demian Lerner has estimated that Nakamoto may have mined over 1 million BTC between January and July of 2009. Although there is no single wallet that possesses 1 million BTC, using Lerner’s research we can see that of the first 1.8 million or so BTC first created, 63% have never been spent. If Nakamoto indeed is sitting on all of these coins, his fortune would be worth in excess of $40 billion.

Not all whales are known, however. And most, like Satoshi, are dormant. In fact, 64 of the top 100 addresses have yet to withdraw or transfer any Bitcoin, including a Binance cold wallet with 288,126 BTC ($13 billion).

When a whale splashes

But what happens when they do trade?

Given whales’ significant concentration of wealth, large buy or sell orders can cause ripple effects. That’s something companies want to avoid when making large purchases, lest they cause the price to rise while they’re still buying. Take MicroStrategy, for example, a public company that holds 105,000 BTC ($4.7 billion).

MicroStrategy CEO Michael Saylor has said the company used a “macro buy strategy” in which it purchased nearly 20,000 Bitcoin in thousands of smaller trades. According to Saylor, during one purchase, the company “traded continuously 74 hours, executing 88,617 trades.” Despite the deliberately small transactions, the company was prepared to buy anywhere between $30-50 million of the asset in a few seconds if Bitcoin’s price dropped by 1 to 2%. 

While large buy orders can quickly drive the price up, large sell orders do, well, the opposite. If sellers try to convert their holdings of BTC to cash or alternative currencies, a lack of liquidity coupled with larger transaction size can create downward pressure on Bitcoin's price. This can lead to a fire sale as retail investors panic and follow suit.

How, exactly, do whales transact?

Whales can use several methods to trade, with each method providing some insight into market conditions.  

• Over the counter (OTC): OTC, or off-exchange trading, involves a bilateral contract in which a buyer and seller agree on how to settle a future trade. Investment banks typically also engage in OTC deals directly with their clients for large-scale transactions. Several centralized exchanges, such as Huobi and Binance, offer OTC desks to connect high-net worth buyers and sellers according to their preferred terms (e.g., price, volumes, etc). However, these deals are inherently private; participants in OTC deals are subject to non-disclosure and non-circumvention agreements. 
• Wallet to wallet: OTC transactions between whales typically occur in a wallet-to-wallet setting. As OTC trades are privacy dependent and don’t require liquidity from exchanges, the effects on market prices generally aren’t as prominent. Typically wallet-to-wallet transactions aren’t paid any attention until they have been publicly announced or flagged by systems like Whale Alert. They generally have negligible impact on prices in the short term as the reason for the funds’ movement isn’t often clear.

• Wallet to exchange: Due to the substantial liquidity that many exchanges can provide, wallet-to-exchange transfers (or exchange inflows) are a fundamental part of crypto markets. Any transfer of Bitcoin from a whale to a known exchange wallet usually coincides with an intent to sell or trade. On-chain data analysis firms such as Glassnode monitor such movements from wallets containing at least 1,000 BTC. Although not typical, a wallet-to-exchange inflow or deposit of several hundred million dollars (in BTC) could spook day traders, create inadvertent sell pressure, and thereby negatively influence or cause prices of Bitcoin to drop temporarily. 
• Exchange to wallet: As they can provide greater security, whales can store their assets in cold wallets, hardware devices that are not connected to the internet. Outflows of Bitcoin from exchanges into cold wallets can result in price appreciation as more BTC is taken out of circulation, thereby stoking demand. However, if a large outflow of stablecoins were to move from exchanges into wallets, it could indicate that whales deem market conditions unfavorable or volatile and prefer a more dependable alternative in the short term. 
• Exchange to exchange: When whales engage in exchange-to-exchange transactions, it’s often for arbitrage, i.e. taking advantage of small differences in price across markets. The slight variations in Bitcoin’s price wouldn’t usually motivate day traders, but since whales control much higher volumes, they can get sizable returns. 

Due to the under-regulated nature of crypto markets, whales can use large buy/sell orders to manipulate market sentiment—for example, by creating large, unrealistic sell orders to keep prices artificially low or by creating large buy orders to temporarily inflate the price.

Yet despite the sporadic price swings or short-term market movements caused by whales, as adoption and maturity in the global crypto market increases—and as the price rises—Bitcoin will continue to shake off the influence of whales over the long term.