Click here to see a fascinating look behind the curtain of bitcoin trading. The author and several experts estimate that perhaps about 1,000 people control 40% of all the bitcoin in existence.
The market capitalization of bitcoin was $322 billion as of Dec. 17 using a price of $19,210 per bitcoin. (Who knows, the market cap could be $500 billion by the time you read this.) Using the $322 billion figure, these 1,000 people control about $130 billion in bitcoin, or an average of $130 million each.
With those kind of holdings, it’s easy to see why these 1,000 people are referred to as the “whales.” Although the exact names of the whales are not known (except for certain individuals, such as Roger Ver, who voluntarily come forward to discuss their holdings), it is possible to identify their activity on the blockchain by spotting and aggregating the unique digital addresses that all bitcoin holders use to prove ownership or transfer their bitcoin.
Obviously, the whales are highly motivated to make sure the price of bitcoin does not crash. There is good evidence that the whales know each other and actively collude to prop up the price. This can be done through “wash sales” (basically two whales trading back and forth at higher prices to “paint the tape” and induce suckers to come in from the sidelines to buy bitcoin at the manipulated price). They can also take turns dumping their bitcoin so not too many whale offers hit the market at the once.
Another technique is to short bitcoin futures and dump actual bitcoin on the exchanges. If the price goes down due to the dumping, the whale is hedged because he makes money on his futures contract. Only the suckers get hurt in these scenarios. When investors ask if it’s safe to go in the water, they are usually thinking about Wall Street sharks. But when it comes to bitcoin, investors should be more concerned about killer whales.