Do you believe that whales cause the swings in Bitcoin markets?  Not so, finds research conducted by a blockchain analysis firm.

Popular Belief

Investors with exposure to the Bitcoin market are well acquainted with the crazy volatility they must deal with. It is widely believed that the big whales, investors who hold high amounts of the cryptocurrency, are responsible for the wild swings in price. One such incident as reported by Bloomberg was the rumored selling of 50,000 Bitcoins by a whale earlier in August leading to a 15% plunge in value.

Research conducted by Chainalysis reveals that it’s not the whales that cause volatility. Contrary to the notion, they help stabilize the price, says the firm. Chainalysis is a blockchain research firm focused on detecting, preventing and investigating cryptocurrency money laundering, fraud, and compliance violations.

Who Are These Whales?

A study of Bitcoin’s largest wallets reveals that 32 portfolios hold close to a million coins worth $6.3 Billion. While the transparency of the Bitcoin blockchains allows anyone to track the transactions being executed from a public address, it is impossible to know the details of the owner of an address. That’s how anonymity is maintained on the network.

Chainalysis analyzed the transactions history of these wallets and categorized them into:

  • Traders: This is a group of 9 wallets holding 332,000 coins worth $2 billion. These are active traders who make up about one-third of the total whales and regularly trade on exchanges. Most entered the market during 2017.
  • Early Adopters/Miners: This is a category of people who entered the market before 2017. This group includes 15 people who hold 332,000 coins worth $2 Billion. They are mostly hodlers, and trading activity for this group is low.
  • Lost: This is a group of 5 wallets holding over 212,000 coins, worth approximately $1.3 billion. The owners of these wallets have lost their private keys, and there have been no transactions from these addresses since 2011.
  • Criminals: The group includes three wallets that hold over 125,000 coins worth about $790 million in value. Two of these whales are connected to the silk road darknet market while one is involved in money laundering.

Are These Whales Causing Market Volatility?

As the above taxonomy reveals, the active traders represent only about one-third of the 32 wallets, and this is the only group involved in active trading. While the trading pattern of these wallets on the exchanges is not available, the transaction history extracted from the addresses reveals that they were buying more than selling during the dips in 2017 and 2018, leading to a net increase in their holdings. And contrary to the widely held notion, the whales helped Bitcoin stabilize and hold the price, rather than bringing it down.

What is your opinion on the above research? Do you agree with the findings? Let us know in the comments below.

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