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Whales: How Some Investors Could Manipulate Digital Currency Markets

What Makes Blockchain or Cryptocurrency "Mainstream" and Have we Arrived?

Recently, Bitcoin Diamond saw a huge increase in price. The jump was of course followed by an inevitable crash. This type of market movement is often called a ‘pump and dump’ by ‘whale’ investors. It is caused by individual events that trigger a buying frenzy, followed by a sell-off at the top, which causes the whole thing to crash back down.

This phenomenon is not necessarily new; markets have been manipulated for as long as we’ve had marketplaces. That being said, the new, exciting, and less regulated world of digital currency has become fertile ground for many forms of market manipulation.  

Whale investors in the marketplace

The term ‘whale’ is often used to describe traders who own large amounts of a digital currency and use that buying power to manipulate the market. Whale investors like to play on people’s emotional state of mind and their fear of missing out (FOMO).

If a whale owns a huge stockpile of Bitcoin Diamond, for instance, it’s in their best interest to sell it at a high price.

Knowing they want to sell at a high price, they set buy orders at higher and higher prices, quickly buying up more low priced coins. People watching the markets see the price rising and FOMO-themselves into buying some as the price rises. This causes a buying frenzy which can cause the price to shoot up incredibly fast.

In the case of Bitcoin Diamond, the price rose roughly 30 times the starting price of that day. At this all-time-high, the whale investors probably sold all of their holdings, signalling a sell-off which causes the price to crash.

Given the number of people that bought in at these all-time-highs, many people lost a lot of money when it came crashing back down. The whale investors got rich, while the average trader potentially lost a lot of money.

The trick here is not to give into FOMO, which is easier said than done. For the typical investor, this starts with asking yourself why are you placing an order on an exchange. If you don’t believe in the product or haven’t done due diligence, that could signal a FOMO investment. Especially watch out for investment decisions based off of excitement from seeing others get rich. There’s often much more to the story.

Sell walls and buy walls

Whale investors can also keep the price artificially high or low, with huge buy or sell orders, called walls.

A sell wall can be placed to sell an extremely large amount of a coin for slightly above what it’s currently selling at. All sellers placing orders after this have to set them slightly lower to be competitive. This has a cascading effect which keeps the price artificially low. The same principle applies, inversely, to buy orders.

These walls can be difficult to spot, as they sometimes occur naturally. For example, a lot of people thought, “when Ripple hits $3 I will sell,” which would cause a lot of orders to pile up and create a natural wall at $3.

To see if your marketplace has a wall look at the order books. If there are very large orders at a certain price comparative to the volume of orders at other prices, that might be a wall. Although not always easy to spot, over time you may get a feel for when a market is being manipulated in this way.

Beware of the ‘shillers’

Digital currency often sees headlines like Turn $1,000 into a million! or Five coins that will get you rich in 2018!. YouTube is saturated with video titles like this from people calling themselves trading experts.

Many of these people are ‘shilling,’ trying to build hype behind a coin for their own profit. Often they own a lot of the coin and would benefit from the price going up. Other times they get paid directly by the company they are hyping up. More than one YouTube star has been called out for this greedy behaviour. Popular YouTuber Data Dash, for instance, recently posted an apology video after getting called out for receiving a large number of digital currency Substratum in exchange for a review.

Similarly, Twitter has become a hotbed for coin shilling. So-called experts cause prices in a market to shoot up ten times just by sending out a tweet that says “coin of the day is [insert random coin].”

A savvy trader may think, “I could ride this price rise, sell at the top and make some good money”. Most people wouldn’t fault you for using this type of logic. However, this is seldom the case.

More than likely, it will play out like this: buy in at a high price, market crashes due to high volume from whales, and average investors can’t place a sell order. After a period of time, the market resumes trading, but the price has already crashed. It’s a quick way to lose money.

Emotional investing

Sensational videos and get rich quick tweets, play on one factor: emotions. The best way to counteract FOMO is to do your research, invest in products you believe in, and have a plan.

Even traditional stock markets have a degree of price manipulation, so this is not just a problem with digital currency. That being said, the decentralized nature of digital currency means buyers need to have a higher degree of awareness.

The golden rule still applies: if it seems too good to be true, it probably is.

A lot of smart investors have done very well in with digital currencies, that is undeniable. The trick is to be smart. Going toe to toe with a whale will not end well when you’re just a little fish. It’s important to pay attention to and avoid obvious risks. With a little luck, you may one day become the whale.


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