The roaring success of the cryptocurrencies is attributable to several factors. The foremost factor is the desire of individuals to experiment with decentralized cryptocurrencies that do not have any external agency. Internally, the role of crypto whales cannot be denied and needs thorough assessment. It is a known fact that whales wield tremendous power and influence and many smaller users observe them closely. It is also true that they can create volatility. Thus, both new and existing users should be aware of the crypto whales and their impact on the crypto market.
Basics of Crypto Whales
The term crypto whale is used to denote individuals and entities that hold large amounts of cryptocurrency. However, there is no predefined threshold as to exactly how much an ordinary user can hold to become a crypto whale. In the context of Bitcoin, it is agreed that an entity or user holding at least 1000 BTC is undoubtedly a crypto whale.
Influence of Crypto Whales on the Crypto Market
Price and Supply
The crypto whales are influential and are known for affecting liquidity. Since crypto whales own large quantities of cryptocurrency it can affect price movements. For instance, if a whale owns a large amount of cryptos then it can significantly reduce supplies in the market and increase its price. The reverse is also true. For instance, if a whale wants to distribute a large section of their holdings, then it can suddenly boost the supply of the cryptocurrency. A sudden increase in supply can dramatically reduce prices.
Liquidity
Liquidity is the ease with which a digital asset can be sold or bought without making significant changes in its price. Whales are naturally going to be an influential minority among crypto users. However, they can wield substantial influence over liquidity. For example, if a small number of whales decide to hold cryptocurrencies and not trade, then it can reduce its liquidity. This can make trading cumbersome for other traders, since holding cryptos will cause significant price movements and make both selling and buying difficult.
Governance on Some Blockchains
Crypto whales can affect governance on some blockchains. This is because some blockchains grant voting rights to holders. Whalers naturally wield their influence because they can influence the direction of blockchain development. In most cases, it is not the numbers, but the weight of the votes held by whalers that matter. By holding large amounts of cryptocurrencies, whales can create more benefits for themselves, thereby, affecting its decentralization.
Also Read- Top Tips For Beneficial Crypto Trading
Bottom Line
Crypto whales undoubtedly have a tremendous amount of influence on certain blockchains. The impact of the influence can be both positive and negative. In the context of newer users, some platforms help in monitoring the activities of the whales. Some even have provisions for reporting the activities of crypto whales. Therefore, monitoring can offer valuable insights into the potential future price movements. They also have more influence in blockchains that use a Proof-of-stake consensus mechanism.
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