Crypto Whales: Market Manipulators or Visionary Trailblazers?

An Op-Ed from Element Group on how the crypto whale carved out a space in an emerging industry — and what comes next as the market becomes institutionalized by Wall Street trade.

 

Crypto whales have been instrumental in forming a multi-million dollar financial market revolution that was non-existent just ten years ago. We say this because the whale community has taken quite a bit of flack in the last couple of years from both blockchain and mainstream media. A quick internet search of the term ‘crypto whale’ brings up a steady stream of articles related – but not limited – to whale-watching, market manipulating and general fear-mongering.

While there is no doubt that a small percentage of large holders of digital assets have used underhanded methods to accumulate wealth, it is a broad generalization to presume that every would-be whale came into cryptocurrency with the sole purpose of flipping the market. Especially considering there wasn’t much of a market to get excited about in the first place. This editorial makes a case for the whale — without whom there would be no crypto industry today.


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An evolutionary tale of a crypto whale

Way back in 2009, when a group of people happened upon the process of bitcoin mining, they likely would never have realized the profits to be gained from tinkering around with this newfound financial ecosystem. Whether it was boredom or curiosity, or some other reason, these miners figured out how to work through a sophisticated algorithm, and solve it with bitcoins in kind. In doing so they unintentionally created the behemoth that is the digital asset market and got very rich in the process. But was it intentional? A stroke of luck or genius? Maybe they knew exactly the potential all along, and we are the bigger fools. Who knows.

What we do know is that the proverbial crypto whale has gone from strength to strength to multi-millionaire in less than a decade due in part to a risky decision making and also due to their being in the right career, at the right time in history. It hasn’t all been smooth sailing the crypto-world has seen some dark years. And there’s a lot to be said for the one who veers right when the whole world says steer left and continues to hold despite pressure to sell. The fact is, for better or worse, crypto whales saw something we couldn’t see. So who are they, how did they get to where they are, and what happens now that Wall Street is entering the ring?

Blockchain 1.0 to 2.0 (bitcoin & ether whales)

When bitcoin trading began it wasn’t seen as particularly profitable. It was the playing field of tech developers, cypherpunks, and anarchists who wanted to take financial power away from ‘The Man’. They saw that possibility in bitcoin. They likely did not, however, know the heights bitcoin would reach in price. It wasn’t until 2011 when the value of bitcoin began to rise above the dollar, that mining turned from a hobby into a cottage industry. A group of people with no experience trading in finance had accidentally carved out a volatile and profitable marketplace.

The emergence of the Ethereum blockchain, and the DAO that followed, provided a new playing field for bitcoin whales who had amassed considerable profits by seeing through the fallow years of 2013-2015. They now needed somewhere to invest and store their assets. But their background wasn’t in finance, they would need to learn fast to figure out their next moves. It was around this time that there were the first sightings of VCs and small-time traders in the space a new breed of players bringing money to the table. The industry was growing but regulation wasn’t and infrastructure was becoming a necessity. Whales looked inward for a network.

Blockchain 3.0 and the Altcoin whale

As millions of dollars changed wallets every day, this emerging industry was calling for structure, and it came down to the proportionally few crypto trailblazers that understood the potential of this technology to put some makeshift frameworks into the market they had created. More VCs were taking an interest, traditional traders’ curiosities were piqued by an unregulated market, and small-time investment bankers saw a void for infrastructure in a profitable and nascent industry. And then there were these crypto miners sitting on an unexpected amount of wealth, with an unanticipated upper hand in a rising market, who had to work out their next steps fast.

2017 the dawn of the token sale saw a whole new level of enthusiasm and money pour into the space. Dark pools were getting bigger and worked more formally together to find profitable digital assets to buy up. Big time investment funds were also getting in on the action and looking for discounts. Shark tactics from bad actors became more prevalent as small-time retail investors looked for an opportunity, and token pumping communities formed on Reddit and Telegram and Twitter. FOMO and FUD abounded and while the market cap rose to unforeseen heights, an epidemic of crypto-scams crawled out from the blockchain woodwork. The ICO era brought out the best and worst in people as the industry scrambled to find its feet.

BUIDLing the plane while…

An overextended market with millions in trading needed more than a handful of informal exchanges to manage it. Some in the space looked to outside regulators for clarity in what seemed to be a world gone mad. Others who were impatient, or may not have wanted outside input, took it upon themselves to put some structure in place. Albeit it wasn’t an overarching structure with set rules, thought-out principles, and defined values. It was more like a scene from the Wild West. A faction of pioneers banded together to protect their hard-earned and riskily-acquired profits, as wagons of newcomers rolled in looking for a goldmine to exploit.

News reached the outside world. The sheriff had to put his foot down. Lawmakers took different tactics in different countries as legislators implemented varying strategies to ‘control’ the situation, everything from light warnings to all-out bans. And investors responded in varying ways. Some with more scruples, some with less. Syndicates and trading platforms formed and plans were hatched to profit from the market, through coin flipping and pump and dump schemes. It is worth noting though that not all these whales had their sights set on dirty tactics. Some were simply lucky miners who had become rich through the maths of appreciation and were figuring out what to do to maintain their new found wealth, rather than squander it all away.

Blockchain 4.0: The Wall Street whale

By late 2017, syndicates were becoming more of a formal structure, where savvy investors were setting up OTC desks and hiring fund managers to oversee their earnings. Bitcoin and other digital currencies were seeing a huge surge in prices which brought even more attention to the space from the media and from Wall Street. Young traders and analysts who missed the boat back in 2007 were hungry for a new opportunity in a trending market. These professional traders brought with them another level of market analysis that hadn’t been seen before. The questions is will these experienced market players relegate the whale to a different role?

The buzzword in the space in the summer of 2018 is ‘institutional investment’ – and the question is when the really big players — the mega-whales — are going to enter the crypto-sphere. Many have hypothesized on the matter, but it is clear that there won’t be any influx until security and liquidity (and regulatory clarity) have been dealt with. All that being said, it is less a matter of if than when, and current investors in the space are well aware of that. So how will this affect crypto-trade and the market going forward? There will be a massive inflow of money of course, and a move towards professional tradesmanship in the market in general. So what will happen to the crypto whale? Demotion to ‘dolphin’ status as the biggest of the ‘whales’ lays claim?

Where to next?

There are many theories on where the market will go, but nobody can be sure. There’ll likely be a divergence — some suggest it’ll be a case of the metaphorical East meets West, where one molds the market to abide by the law and the other maintains its reckless charm. One makes things mainstream while the other makes breakthroughs. There may even be segmentation in trade methods of retailers, whales, and institutions to make the market fit their needs. But one thing is sure, it was the mining whale who carved the space from nothing more than an algorithm, who blindly hashed out another way to bank — and if there are any more unknown waters to be crossed — it’ll be that whale that dives in deepest and finds the treasure first.


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