Owners of “whale wallets” scooped up 450,000 BTC as the bitcoin market hit bear-market lows in late 2018. It appears whales now control 25% of all BTC.
Is this good or bad for bitcoin?
WHALES ARE SMART MONEY
These private, non-institutional buyers decided an 85 percent decline was a buying opportunity.
The market sent BTC prices higher.
Now they hold bitcoin, hoping to exploit the law of supply and demand. By hoarding coins, liquidity dries up, theoretically forcing prices higher.
BEEN HERE BEFORE
DeBeers hoarded an otherwise unexceptional mineral, started its own hype machine that diamonds were amazing things everyone must have, the media caught on, and a scam was born.
DeBeers controlled 85 percent of the market. They also had the advantage of controlling most of the world’s mining.
WATCH WHEN WHALES BAIL
Just like diamonds, bitcoins are inherently worthless and being hoarded.
Just like diamonds, bitcoins are hyped by those who control it, and the media does the rest.
Thus, it’s possible – not definite – that the price of BTC will continue higher until the whales bail.
Mark my words, they will bail.
Don’t end up as the bagholder.
Whale activity like this is common in markets with limited supply.
We are seeing it now in the New York City taxi medallion industry. The price of the license to operate a taxi fell from $1 million to $150,000 and that’s when the hedge funds piled in.
At some point, the hedge funds will sell. In the meantime, they can lease their medallions and earn a return on their investment.
Not so with BTC.
Bitcoin does not generate income. So the whales will hope restricting supply will push BTC into another parabolic rise, and sell as BTC price hits peak velocity.
If you are dumb money, that’s when you will buy, and that will make you a bagholder.
You will be stuck, possibly forever or until you sell at a huge loss, as you desperately cling to the hope that the BTC price might hit those impossible highs one last time.
It’s possible but unlikely. Most securities get one big parabolic rise in their lifetime. Twice is an outlier. Three times would be almost unprecedented.
BAD FOR BITCOIN. BAD FOR YOU
This whale action is bad for bitcoin. All it does is rev up the hype machine. It inhibits the natural flow of an already artificial market.
It will make bagholders out of a lot of people, who will then lack the liquidity to do any further trading.
And it will solidify the truth: that bitcoin’s volatility make it useless for anything other than insanely speculative traders.
Because bitcoin isn’t actually worth anything. It’s for suckers.