Chainalysis Research: Bitcoin Whales Not As Deadly As Some People Think

Siamak Masnavi

On Wednesday (10 October 2018), Chainalysis, a company that specializes in blockchain analysis software, published the results of its latest research in a blog post, with the report concluding from observed data that Bitcoin whales (i.e. the largest holders) are "a diverse group that may be stabilizing, rather than destabilizing, the market."

Chainalysis provides software solutions, namely "Chainalysis Reactor" and "Chainalysis KYT", which are used for investigation and compliance purposes by institutional clients, such as banks and crypto exchanges, as well as governmental bodies from around the world.

Last month, when the Bitcoin price dropped 15% during a two-day period, Bloomberg reported that one popular theory in the crypto space was that "a whale was on the move", with the speculation that "a major holder of cryptocurrency with an electronic wallet that dated back to 2011 -- long before anyone had heard of HODL -- was moving to sell" (this wallet was alleged to have "had as many as 111,114 Bitcoins, which at their peak would have been worth about $2 billion"). 

Bloomberg contacted Chainalysis, which discovered that "50 transactions involving a total of 50,500 Bitcoins originating from that whale’s wallet were moved between Aug. 23 and 30." Kimberly Grauer, Senior Economist at the New York office of Chainalysis, told Bloomberg:

“This is actually really interesting because of the Reddit detective work that’s been happening and just people making these assumptions that this whale is cashing out. t leads to conspiracy theories that someone’s trying to sabotage Bitcoin -- just from someone doing an administrative move of their funds for security purposes, or we don’t even know why they have done it.”

In its latest blog post, Chainalysis says that "intensive analysis of bitcoin’s 32 largest wallets, however, shows these fears to be overblown." They say that their data "demonstrates that Bitcoin whales are a diverse group, and only about a third of them are active traders." Also, they note that "while these trading whales certainly have the capability of executing transactions large enough to move the market, they have, on net, traded against the herd, buying on price declines." It seems that the whales "have stabilized the market during recent price declines, rather than exacerbating price movements." To Chainalysis, this "makes sense since these trading whales are professionals with no vested interest in abruptly tanking the market." And of course, when such traders need liquidity, they are "likely to use OTC trading platforms equipped to manage large transactions with minimal market disruption."

After analyzing "the transactional history of the 32 largest bitcoin wallets not on exchanges as of August 2018", Chainalysis developed a taxonomy of Bitcoin whales. It says that the whales "represent roughly one million bitcoins, or about $6.3 billion dollars." The four whale types they identified are

  • "Traders:  These whales regularly engage with exchanges to buy and sell bitcoin. With nine wallets controlling over 332,000 coins, worth just over $2 billion, whales who actively trade make up the largest category, but only about a third of total whale holdings. Traders are also relatively recent arrivals in the Bitcoin universe: most got into the market in 2017."
  • "Miners/Early Adopters:  The second largest group of whales entered the market much earlier, prior to 2017. This group includes 15 investors, also holding a total of 332,000 coins, worth a bit more than $2 billion. Current trading activity for this group is extremely low. Many of them made significant divestments in 2016 and 2017 as the bitcoin price soared and are now, we assume, extremely wealthy."
  • "Lost: Lost whales make up another large part of the pod with five wallets holding over 212,000 coins, worth approximately $1.3 billion. These are wallets where the owner has lost their private keys and can no longer access their bitcoin. By definition, there have been no transactions at all from these whales since 2011. "
  • "Criminals: This is the smallest segment amongst the whales with three wallets, over 125,000 coins and just short of $790 million in asset value. Two of these whales are connected with the Silk Road darknet market, while the other appears to be involved in money laundering."

From this group, "only the traders, representing about one-third of whale assets, are actively buying and selling bitcoin." The early adopters (or miners) and criminals "have been in a holding pattern in recent years" and "lost bitcoin whales have, by definition, been inactive since 2011 (and, we assume, will remain so indefinitely)."

Chainalysis says that their data shows that these trading whales are not increasing Bitcoin's price volatility, and that "during the major price declines of December 2017 and most of 2018, trading whales were actually net purchasers of bitcoin." They point out that their data doesn’t capture on-exchange transactions, but "it does measure the net gain or loss of bitcoin in these wallets." This net activity shows "that trading whales were not selling off bitcoin in any mass amount, but rather were net receivers of bitcoin from exchanges in late 2016 and 2017." This means that "trading whales were, in aggregate, buying on declines and, consequently, were a stabilizing, rather than destabilizing factor in the market."

Chainalysis concludes that "while Bitcoin whales may be big and somewhat mysterious, they have less of an impact on market prices than many people believe."

 

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