The Anatomy Of A Whale

January 15, 2018. By Hirako San — #cryptocurrency

The nature of Whales and their feeding cycles. This is ENTIRELY my own thesis, terminology, and beliefs; all based on my years of experience in trading and the various discussions and observations that I’ve had over those years.

Before we begin, we should take a hard look at ourselves first.

The Average Investor

Playing with relatively small money (maybe $20 — $10k), but it seems like a lot to them, more than they should be risking
Exhibits compulsive tendencies, which led them into this risky trading arena in the first place
Has very little experience trading
Trades emotionally instead of strategically
SUPER impatient
Trades often, sometimes multiple times a day, doesn’t sleep, eat or shower, looks like a crackhead, unhappy
Tends to exhibit strong brand loyalty; personifying and emotionally attaching to and vigorously defending their chosen coin, and venomously and perpetually hating on any coin that mistreated them, or even if the other coins are just doing better.
Easily swayed by opinions of others, particularly media, even if disreputable. Highly reactive to FUD or FOMO.
Focuses mostly on a coin’s unit price, and ignores/misunderstands other values like volume, market cap, order book, walls, etc.

The Experienced Investor

Lost a FUCKING OBSCENE amount of money during their progenitor Average Investor stage. Lots of battle scars
Trades in a goal-oriented fashion, by the book. No emotional trades at all
Knows how to capitalise on common opportunities (buy the dip, buy the rumour sell the news, don’t chase, etc.)
Doesn’t have brand loyalty, looks only at fundamentals defined by a coin’s utility, can shift position quick when it makes sense
Patience is their game
Doesn’t have much invested in shit coins, but some, just in case they get lucky. Most of their money is in the coins they see as having long-term potential
Sleeps well, learning to be a chef, smells the roses, writes on Reddit a lot, sexy
Rarely trades big amounts, but probably trades small amounts frequently in the shit coins for fun
Can pick out FUD and FOMO manipulation a mile away. Doesn’t trust ANYBODY or ANY MEDIA outlet whatsoever. They know that everyone and everything is full of shit just trying to pump their coins or FUD everyone else’s.
Pays close attention to sharp volume changes indicative of insider trading, instead of watching the news
Uses TA for the only thing it’s good for, which is predicting when the next grocery bagger is going to promote TA
Recognises that bots are an essential tool to be able to capitalise on 24/7 trading opportunities. Most probably don’t have access to bot-tech, but the majority of bots out there are run by people in this category.

And now the star of our show...

The Whale Investor

At its most fundamental definition, a whale is someone or some entity that controls a very large stake in a coin, such that they can significantly influence price and volume should they choose to buy and sell in large quantities.
As I see it, there are 3 types of whales: benevolent (wants to act in ways that benefit everyone), long-term stakeholder (holds a lot but doesn’t actively trade any of it), and profiteer (trying to increase their net worth). I will focus mostly on the profiteer for the remainder of this post because they represent the most critical influence upon a coin’s real-time value.
Whales are investors, just like the rest of us, and with absolute certainty, they want their investment to increase in value over time. REALLY beat that into your brain, recognising this fact is absolute key to becoming an experienced investor. Keep beating it into your head. More.
GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY GREEDY. Bottomless, ceaseless, satanic GREED!!
They are not suicidal. They will not destroy the value of their assets by dumping all at once. Understand that whales cannot possibly cash everything out at once because if they try, they will absolutely crush the price, and the vast majority of their remaining coins will be worthless. It would be utterly senseless, literally burning money, and goes against their very nature that made them whales in the first place. Do not expect self-destructive behavior from any kind of whale. It still amazes me that people even now still think that Ripple might want to dump all their XRP on the market… Why people? Why? Would you drive a car off a cliff just because you can?? Ridiculous.
GREEDY
Whales can and do work with each other, literally, or passively. They need to be coordinated in order to avoid tripping over each other, canceling out their mutual efforts. They either form private groups (finding each other on forums with throw-away accounts to disguise who they are), or they watch other whale activity (which is quite obvious to the trained eye) and synchronize their bots, or let the other whales do all the work and just compete for the coins that get shaken out by loose hands (that was a big hint, day traders).
Don’t confuse them for insider traders. Some of them may be, but that’s not necessarily common. Their only advantage is being able to move the market, not see what’s coming.

So where do whales come from?

Whale Creation

Ask yourself, if you could go back in time to when XRP first came out at half a cent, how much would you buy? Right, lots and lots and lots.

I’m certain most people could’ve even afforded a million XRP ($5000 worth at the time). You could’ve been a whale today too if you took this chance. So imagine how many perhaps wealthy people saw this relatively unknown coin, felt like gambling, and threw $500,000 at it.

That’s right, 100 million XRP.

Some people have that kind of money to gamble with, and a lot of them are looking for the next bitcoin, and all the stars align with XRP, so why not? So they take a chance. A whale is born. He’s cute and small and the other fishies laugh at him, but he’s got a glimmer in his eye, and nothing but time to kill.

How do they do the things they do to the price?

The Whale Toolset

VISIBLE BUY or SELL WALLS

The whale will put a relatively HUGE buy (or sell) order on the order books, effectively absorbing every sell (or buy, respectively) order that comes in, keeping the price from increasing (or decreasing) until the overall sentiment changes and the price goes the other direction.

This is why it’s called a wall. The fact that this wall is visible to the public means they are sending the message, “There’s no hope of getting the price past this barrier, so you might as well give up”; and with a significantly large enough wall, they will succeed in preventing a price breach.

Moreover, a visible wall works quickly because investors give up trying to break the wall long before they run out of capital. The visible wall is used by whales to coax investors in the opposite price direction (like corralling cattle), at minimal cost to themselves because very few orders against their wall would’ve been executed before the price turned around.

INVISIBLE BUY or SELL WALLS

This is a little harder to spot, intentionally so, and this strategy is used so a whale can quietly accumulate or liquidate some or all of their holdings.

Their bot will continuously put sell (or buy) orders in for small amounts (possibly on multiple exchanges simultaneously to increase the flow rate), and as they get consumed by trades, those same orders are repeated at similar amounts, until the desired overall sum of holdings are converted.

Generally there is a strong buy or sell sentiment being acted upon by the investors, which steers capital flow into consuming the hidden wall.

By not putting the entire amount up for sale (or purchase) in a large visible order, there’s no indicator to investors just how big the invisible wall is.

They aren’t discouraged like they would be with a visible wall, and are more likely to keep pumping against the hidden wall, using a lot more capital than they would if the wall was visible, allowing the whale more of the desired liquidation or accumulation.

DRIVING THE PRICE

During periods of low volume (lulls in trading activity), they can use multiple exchange accounts (controlled by one bot, or different whale-bots working together) on an exchange, or even multiple exchanges, to ‘buy’ and ‘sell’ low volumes of coins (micro-trades) between these accounts, while also consuming a thin order book.

Despite that this trade volume is very small, and doesn’t even cost the whales that much, they can over time, DRAMATICALLY change the currently traded price in whatever direction they wish.

The faster the price-change drive, the harder it is for the whales because the order books typically have large walls a short distance from the current price, but a very slow patient change allows the rest of the order book to recenter so the whales don’t hardly need to consume the order book at all, instead just trading between themselves for near net zero costs.

PROPPING

This is the act of locking in a new price plateau by sustaining the price where they want it with continued micro-trading. This behaviour is typically seen after a parabolic and subsequent correction.

The intent is to allow the price time to consolidate (which really just means build confidence in other investors that the new price will hold). This can take some time, but eventually the price sticks without further propping as investors get used to seeing the new price.

FAKE-OUT

They know other people’s dumber bots are out there, and they also know people have stop-loss orders set up on the exchanges (by the way, I’m firmly convinced that Bitstamp has a premium members-only portal where other people’s stop-losses can be seen. Don’t ever think you’re invisible).

By intermittently performing a rapid price drive down, the whales can trigger a bunch of stop-losses and bot aneurysms, scoop up the cheap coins, and bring the price back up before human panic ensues.

And everyone’s favourite, THE GRIND

Tick, there goes another percent.. Tick, there goes another percent.. Tick… It’s Chinese drop torture (ba-dum dum).

Whales just slowly burn away at the price with spread-out micro-trades, until someone after 5 days of no sleep finally completely loses their shit (I CAN’T TAKE IT ANY MORE!!!) and sells everything.

GULP! Whale buys it all up, and then micro-trades the price back up.

The same idiot then sees it going back up, re-buys all the coins he can (which is a lot fewer now because he’s paying more for them than he sold them at), and guess what! The bots sense the purchase, and start micro-trading down again, which AGAIN panics this IDIOT to SELL everything!!

Yes, I’ve been this idiot many shameful times…sigh.. I no longer drink.

So let’s figure out how this all works together, shall we?

First, let’s get this out of the way by starting at the end, because everyone is so scared of this:

The Whale Exit

Often cited as the “pump and dump”, this phase only applies to “shit coins with no real utility”.

Whales playing in shit coins get in when the price is super low, build a massive holding, and then start capitalising on any good news about their shit coin, to use as an excuse for artificially driving the price up, making the other investors think that the price pump was related to the news.

They build artificial confidence in this coin by continuing to drive the price up with micro-trades, and they keep feeding off of the inexperienced traders that are attracted by the perceived gains that think they might also catch the wave.

At some point, the whale decides to sell off so they wait for further good news (sometimes even playing a party to producing said news), pump the price a bit more, and then use a hidden sell wall to exit their position as all the inexperienced investors rush in.

Once the whale is completely sold off, there’s nothing to prop the price up (whale’s gone), and the coin dumps hard as everyone scrambles to get out.

For “coins with utility” however, the whales know that there’s inherent and increasing value to the coins so their strategy is the complete opposite, they don’t pump these coins beyond inherent value, rather they try to suppress their prices, and they have no plans on cashing out while there’s still promise of further growth.

They just keep on playing out the feeding cycle (explained below) over and over and over. Some of you may believe that at some point they are ‘rich enough’ and will stop manipulating the market…phffft… Sorry my friends, greed is more addictive than crack, a self-reinforcing lizard-brain instinct that heartily bitch-slaps those pesky mammalian brain instincts of love for your fellow man.

Nobody becomes a whale by drawing lines of ‘I only need this much to be happy’. Their desired wealth goals are “more”. This is good for us however, because it creates a somewhat predictable larger feeding cycle:

The Whale Feeding Cycle

PARABOLIC PHASE: Attract the Krill

The setup for this phase is: the whale waits until there’s some news that could be considered ‘good’, and the volume leading up to it is relatively low.

In XRP’s case, the opportunity came when Ripple announced their intent to do the XRP lockup (Never mind the endless other good news for Ripple around that same time that had absolutely zero impact on the price).

Now that there’s a seemingly rational explanation for a price increase, the whales micro-trade the price up really fast, sparking an intense lemming-like investor rally that overshoots on its own momentum, corrects hard (30–50%), and then stops its free fall when the buys and sells equalise.

At this point the whales start propping the price at this new plateau with micro-trades until the price stabilises on its own. Phase complete. Our baby whales are suddenly pretty damn big, and it’s not likely there will be any new whales coming that can match these first-adopters.

Now we shift to the..

SUPPRESSION PHASE: Weigh down the price

There are two aspects to suppression: killing upward trends, and “grinding” downwards (with occasional fakeouts to keep it interesting). For killing uptrends, we saw between the XRP parabolics last year that no matter what good news came down the pipe, the price didn’t significantly budge, or whatever budge happened, didn’t stick.

Ben Bernanke speaking at Swell? Zip. Partnership with tons of new FIs? Zero. You can look at XRP for all of 2017 and put mark points where good news was released, and nothing concrete happened at all; nothing.

This is suppression, and even Ripple, Inc publicly announced they were actively selling during this time. That’s not to say they are entirely responsible for suppressing the price, yet they acted in a way that may be confused for profiteering, but really, they were using the money from their market XRP sales to build Ripple out globally, so in reality they were acting as a benefactor whale, which we’ll all benefit from in the long run. Thank you Ripple.

As far as the downward price-grind however, it’s quite easy to see that between the parabolics, XRP ran a repeating pattern of slightly up and slightly down, back up again but not quite as high as the last time, and then down just a little bit further than the previous time, for months and months.

Mental torture. Realise that inexperienced traders react emotionally and they only value the current price as an indicator of success or fail. They’re not registering the importance that MUFG adopted Ripple and promoted XRP. They’re not registering that central banks from around the world met at a private symposium with Ripple. They don’t care that officials from the Chinese government had a meeting with Ripple IN THEIR SF OFFICE!.. No, inexperienced investors ONLY see a price descent happening and get extremely nervous about losing their far-too-large-for-them investment, and their loose hands sell their cheap XRP.

Gobble gobble, whales reset the trap by driving the price almost back to where it was (or sometimes not even back up if they think they can shake things up just a bit lower), and start grinding all over again.

Some of you may ask, how does holding the price down help them make money?

Look at it this way, let’s say the price of a coin is $1 at the beginning of the year, and they want to cash out at the end of the year at $10, does it matter if the price is $1 from February to November? Not at all. What happens between now and the target date is inconsequential in terms of profit.

What does matter to them is trying to get at many coins as possible as cheaply as possible. You’ve heard the old saying, buy low, sell high? Well, for us, that’s a guessing game, but for whales who can drive the price in any direction, they can predictably always buy low and sell high because they manufacture the lows and highs. And by performing these cycles of grinding, they are accumulating more and more XRP from loose hands, such that when they do allow the next parabolic, their coin holdings are much larger than if they just let the price grow naturally because the result would be that nobody would be inclined to sell their coins during this growth period.

In other words, suppressing prices means people sell to the whales at a cheap price and they continue to accumulate, whereas allowing natural price appreciation encourages hodlers which blocks the whales from increasing their holdings. Make sense now?

STARVATION PHASE:

Whales can only shakeout so many people before there are no loose-handed investors left, and all that remains are the seasoned investors that stick it to the whales. Won’t be taking my XRP!, they cry.

Moreover, if they keep the price down for too long, no new money will be interested to join the party. Famine ensues.

So what’s a sad poor whale to do? I’ve got it! Wait for some related good news, anything will do, and start another parabolic!..which like clockwork will attract a whole new generation of inexperienced investors to feed off of! How about a $100 million XRP hedge fund! Nah.. How about MoneyGram! Of course!! It’s so absurdly transparent.

It’s also possible for the current whale price-suppression phase to end prematurely if something too big to control happens, like super-good-news, and the new investors come in all by themselves, naturally creating a parabolic. Either way, once things settle back down, the whale resets its feeding parameters to the new plateau, and begins the feeding cycles once again. Wash. Rinse. Repeat. As long as XRP is expected to appreciate from all the forces that give it value, these feeding cycles will continue, with intermittent parabolics to keep the fresh blood coming in.

IN CONCLUSION

Overall, the activities of these whales don’t define a rate of growth, they simply obscure the natural increase in coin valuation that only becomes apparent after each new plateau.

By drawing a line connecting the beginnings of each plateau, you can kind of get a sense of the natural rate of growth for the coin, which too, follows a parabolic. This means the earlier you got in, the more exponential each subsequent parabolic will impact you, assuming you didn’t get shaken out of course.

Be careful though, there’s only so many parabolics that can occur before the pyramid corrects, and you don’t want to be on the top floor of that mess. XRP ‘seems’ to have an enormous amount of headroom still above it, but that’s only as true as how many people also believe that (probably even largely defined by that at this point in the game).

It sounds sad that we have to deal with these goliaths always playing with our emotions, but when has Darwinism ever been fair? Have faith that over time, their influences will diminish with more global adoption and better dispersion of XRP assets. Among all the sound reasons that Ripple, Inc. held onto so many of their coins, I’d say their ability to act as a benevolent whale if necessary, was the most brilliant, and their ability to highly distribute more XRP will be the diluting effect upon the whales that we’d all like to see.

That being said, now that you ‘get it’. It’s quite obvious how you should be trading against whales.. HODL. Wait for the next parabolic.

However (I’ll digress a bit), be responsible and realistic about the likelihood that the parabolics will keep coming, because that money isn’t coming from outer space, it can only come from new investors, and soon a lot of FIs (we hope).

As long as the prognosis for exponential Ripple adoption remains healthy, we should be good to go for a bit yet, but if competition starts getting a foothold, or somebody hacks Ripple, or Brad has a sex scandal..er, well that might help actually, anyways, just don’t be stupid with your money; nothing is guaranteed.

Disclaimers: It’s my opinion, do your own research, won’t give investment advice, not making it ADD-friendly, don’t smoke crack, yada yada..