On November 12, someone moved almost 25 thousand bitcoins worth 159 million dollars for an online exchange. The news soon spread through online forums, with cryptocurrency traders discussing whether that meant the owner was about to sell the digital currency.
Owners of large amounts of bitcoin are often referred to as ‘whales’ and are becoming a concern for investors.
They can make cryptocurrency move by selling even a part of their portfolio values. Those sales are more likely now that the cryptocurrency has multiplied almost twelve times since the beginning of the year.
About 40 percent of the bitcoins are in the hands of at least a thousand users and each one, if he wants, he can sell about half of his possessions in cryptocurrencies, explained Aaron Brown, former managing director and head of financial market research at AQR Capital Management.
In addition, the ‘whales’ can coordinate their movements or preview them. Many of the big owners have negotiated with cryptocurrency for years, in the early days where bitcoin was ridiculed, but now they can sink or shore up the market.
“I think there are a few hundred guys (who own bitcoins), they all can probably call each other, and they probably do,” said Kyle Samani, managing partner at Multicoin Capital.
Regulators have been slow to catch up with the cryptocurrency trade, so many of the rules are still ambiguous.
If negotiators not only communicate to raise prices but also to spread rumours, that could count as a fraud. Bittrex recently published a text in which it warned its users that their accounts could be suspended if they join groups focused on price manipulation.
The law can also be different with other digital currencies. It depends on the details of how they are structured and how much money investors expect to make with them, some may have several types of them, according to the US Securities and Exchange Commission.
Roger Ver, a well-known bitcoin investor, said that it is likely that large investors can move together.
“As in any asset class, large individual investors and large institutional investors can and do conspire to manipulate the price,” he explained.
Ari Paul, co-founder of BlockTower Capital and former portfolio manager at the University of Chicago, said that “with cryptocurrencies, the manipulation is extreme due to the ‘youth’ of these markets and the speculative nature of the assets.”
The recent increase in the price of bitcoin is hard to explain, since it has no intrinsic value. Launched in 2009 as a white paper with a pseudonym written on the back, it is a form of digital payment that is maintained by an independent network of computers on the Internet, using cryptography to verify transactions.
The most fervent believers say that it could displace banks and even traditional money, but it is only worth what someone will trade for it, making it subject to great changes.
Ordinary investors, of course, do not have the necessary cache to make a billionaire take his call. While they can track addresses with large stocks online and start heated discussions about market movements in the Reddit forums, they can learn about the plans and motives of the ‘whales’.
Ordinary investors have greater disadvantages in smaller digital coins and chips.
With ethereum, a bitcoin rival, the top one hundred titles control 40 percent of the offer, and with currencies like Gnosis, Qtum and Storj, top titles control more than 90 percent.
Many of the large owners are part of the teams that execute these projects. Some argue that this is not different from what happens in established markets.
“A good comparison is equity in the early stages,” wrote Paul, of BlockTower. “Similar to those shares and their offers, often the founders and a handful of investors will own the majority of the assets.”