Small Whales could be the Biggest Factor Holding Bitcoin Price above US$27K

Small whales are becoming a common sight in the cryptocurrency world, especially when it comes to Bitcoin.

Whales are entities—individuals, institutions, and exchanges—that hold significant amounts of tokens of a particular cryptocurrency. For instance, when it comes to Bitcoin (BTC), a whale is an account that holds 1,000 Bitcoins or more. Some examples of well-known whales include Pantera Capital and Fortress Investment Group. Another popular—yet widely speculated—the whale is Satoshi Nakamoto, who is said to have mined over a million Bitcoins.

Bitcoin whales are like other majority asset holders: their movements have outsized impacts on the bitcoin market, either through increased volatility, decreased liquidity, or a combination of both.

Whales typically put massive sell orders on the books lower than other sell positions in the market creating volatility following which prices fall triggering a chain reaction. Stability returns when whales pull their large sell orders off the market or create enough panic selling to land the price to where they wanted and accumulate more coins, this tactic is often called "sell wall".

What Is Bitcoin (BTC)?

Bitcoin is a decentralized cryptocurrency originally described in a 2008 whitepaper by a person, or group of people, using the alias Satoshi Nakamoto. It was launched soon after, in January 2009.

Bitcoin is a peer-to-peer online currency, meaning that all transactions happen directly between equal, independent network participants, without the need for any intermediary to permit or facilitate them. Bitcoin was created, according to Nakamoto's own words, to allow "online payments to be sent directly from one party to another without going through a financial institution."

Some concepts for a similar type of a decentralized electronic currency precede BTC, but Bitcoin holds the distinction of being the first-ever cryptocurrency to come into actual use.

A single whale, or a group, could potentially orchestrate a crash by selling a significant number of coins in order to instigate a wider market sell-off, only to then swoop in and buy back coins at cheaper prices. Similarly, they could also trigger a short-squeeze so that the asset's price soars and attracts retail investors, whose buying pressure then amplifies the surge even more and thereby increases the value of the whales' holdings.

For example, on April 2, 2019, the value of BTC jumped from around US$4,200 to nearly US$5,000 within just two hours. While this initially seemed like a breakout for the long consolidating chart, pointed toward a single order of 20,000 BTC that was executed across three different exchanges. This purchase successfully changed the market sentiment and acted as the trigger for a rally that saw the leading crypto appreciate more than 240% by the end of that June.

What is bitcoin mining?

Mining is the process that maintains the bitcoin network and also how new coins are brought into existence.

All transactions are publicly broadcast on the network and miners bundle large collections of transactions together into blocks by completing a cryptographic calculation that's extremely hard to generate but very easy to verify.

What does the future hold for bitcoin?

Biden's pick for treasury secretary, Janet Yellen, recently suggested lawmakers curtail cryptocurrencies like bitcoin due to concerns they are mainly used for illegal activities.

However, a Biden administration could be friendly to crypto, according to Yahoo Finance, given its pick of crypto expert Gary Gensler as SEC chairman.

Nobody knows for certain whether a cryptocurrency will rebound from this slump or if it will even be around in the future. It's still a highly speculative investment, and even major cryptos like Bitcoin and Ethereum are not guaranteed to succeed.

This doesn't necessarily mean you shouldn't invest. But it's wise to consider how much risk you can tolerate.