For a normal investor like you and I, a coin trading strategy simply involves identifying a few coins that are about to rise in value and investing in them. However, coin whales have lots of money to spend on their investment, and they usually do so through a portfolio including dozens of coins. The strategy these whales apply in their investment portfolio is different from what we may use, but we can still learn a few things from how they do things. After all, you can never ignore any edge to be had in the arenas. In this post, we shall see how arena whales invest and what we can get out of that.
What do these coin whales look for in the arenas?
Before we even get into the actual arena factors a coin whale focuses on, it is important to identify who would be considered a whale. In the equities arena, these are usually the investment banks and hedge funds that trade the largest amounts of assets. On the other hand, institutional investors have yet to become major participants in the coin arenas. Sure there may be a few financial institutions participating, but these do not constitute whales. (Will Institutional Investors and Sharks Invest Massively in BTC in 2019?)
Who is a coin whale?
Unlike the equities arena, coin whales are actually mainly individuals who accumulated huge amounts of coins while they were still extremely cheap. Really anyone who bought a lot of BTC back in 2013 and earlier when it was worth less than $100 could be considered a whale. Although technically only an individual with $1 billion in BTC is called a whale in the coin arenas, having just 1,000 BTCs in your wallet makes you a big fish. Chainalysis reported that there are 1,600 wallets with more than 1,000 BTCs and 100 of them hold more than 10,000 BTC. It is possible to see which wallets hold these huge amounts of BTC on the blockchain, but we can’t tell who these wallets belong to.
An example of them is Satoshi Nakamoto who created BTC and holds an estimated 1 million BTCs. Going by the current arena price of about $4,000, that would make them a billionaire. The Winklevoss twins claim to hold about 1% of all BTC globally, placing their holdings at around $700 million by current arena capitalization. Several others acquired their massive BTC holdings from the US Marshals Service in 2014. After the closing of Silk Road, a popular black arena for illegal drugs, the US government seized 144,000 BTCs and sold them at an auction at $350. One of the buyers included Barry Silbert who bought 48,000 BTCs, now worth close to $200 million. He wasn’t the only one as several other individuals also participated in the auction and stocked up on cheap BTC. (Get: The lowdown on coin)
Recently, an account with $1 billion worth of BTC became active after lying dormant for four years. This BTC wallet was associated with Silk Road, and represents a huge amount of BTCs. If the owner decided to sell the BTCs, it would create panic in the arena and a large selloff would ensue. This news has spread shivers across the arenas, showing us all just how much power the coin whales have in the arenas, and why even big banks are afraid of entering this space. (After The BTC Cash Fork, Which Is The Real BTC?)
What matters to a coin whale?
One of the most important considerations a whale has to take into account is stability over volatility. An individual may be excited by extreme volatility because it could mean some quick profits, but this is not a good thing to a coin whale. Imagine if you had 100,000 pieces of a particular coin and its value whipsawed in value by, say, $100 dollars in a day. That would bring in a lot of profits one day and colossal losses on the other day; we’re talking millions lost within a day! Obviously, this is not good to such an individual, which is why they prefer to invest in coins with relative stability. (Investor Tips 2019: What To Include In Your Portfolio)
When you hold a massive amount of coins, even the slightest movement upwards in value could mean enormous profits. And even when prices drop periodically, this doesn’t cause extreme losses to the account. Consider some of the largest investment banks like Goldman Sachs who made 8.5% in profit in 2017 yet gained $32 billion in revenue the same year. Therefore, whales must consider how much volatility a particular coin experiences from day to day before they can commit their huge monies to it. As an example, the same Goldman Sachs abandoned their plans for creating a trading desk for coins in September this year after seeing the massive selloff in the arenas and the volatility created from news announcements. (Gram (TON) Vs BTC in 2019: Best Worldwide Coin Fight, Pros and Cons)
The other thing a whale would consider is the longevity of the coin in the arenas. Today there are over 2,000 coins available in the arenas according to CoinMarketCap, but the number is always changing. Why so? Because there are always new ones coming in as others ‘die’. DeadCoins is a website that keeps track of all the coins that have come and gone, and they reported the ‘death’ of over 1,000 coins in 2018 alone. When a coin dies, it is completely gone, leaving no trace behind. It’s not like a company listed on a stock exchange that has to file for bankruptcy as that could at least pay back the shareholders. This is why it is important to be careful which coins you choose to invest in and ensure they will be around in future so as not to lose your entire investment. (Read our: BTC Price Prediction Update And Forecast For Autumn 2018)
Moreover, coin whales do not make daily trades as many of us do. We at Top Brokers often make price predictions for coins covering the week, month, season and even year, but whales look for even longer timeframes. When you’re investing millions of dollars in a coin, you must be prepared to keep it parked for several years to come before even thinking about pulling out. And even when you finally do, it’s usually to reinvest it elsewhere after a better performing alternative appears. That makes the longevity of a coin critical to a whale deciding whether to invest or not. (How and When Do You Know You’re Ready for The Big Live Account Leagues?)
Finally, a coin has to be legitimate in the eyes of the law and as a company before a whale can hand over their millions. Many of the coins that have died did so because they were not completely legitimate, and some were even outright scams. The scammers running these ‘shitcoins’ were hoping to collect enough money from investors before wrapping up shop and disappearing with their money. Although even losing $1,000 would be hurtful, losing millions would be devastating, thus the whales have to take extra caution when picking out coins to invest in. Approval by regulators and widespread applications also increase the legitimacy of a coin and make it more attractive to a whale. (These are: The Most Prominent Coin Hacks and Scams You Should Know)
What a coin investment strategy for a whale looks like
Although the above factors highlight what coin whales consider when investing in coins, we can all see the benefits of following in those same footsteps when we pick out our own meagre amount of coins. Based off these considerations, we can now see what a coin investment strategy for such a whale might look like.
Identify the best coins
Before even making any financial commitment, the first step the whales take is to identify the best coins. This does not necessarily mean the coins with the highest arena capitalization on CoinMarketCap, even though that counts as well. What is most important is the legitimacy of the coin itself. A quick way of finding out the most legitimate coins is looking at their adoption. The most obvious is BTC, which has already been legalized as currency in Japan and also accepted to pay taxes in Ohio, Texas, US. Other coins have also become accepted in various places and for various services, and this also gives those coins legitimacy. As for the coins that were launched through ICOs, they can be given legitimacy if they were held in the US and approved by the SEC, which labelled ICOs as securities that need regulation. These include the likes of EOS, IOTA and other coins that were the result of ICOs; even ETH. (Some of the: Alternative Coins beside BTC to invest in)
For a whale to invest a lot of money, they also have to know who receives the money and the companies behind the project. For most coins, they were created as a project by particular companies, and these are the ones that create the coin investors pay for. Since they receive the money, you must know the team running the company, their reputation and whether they can be trusted. The same goes for the coin exchanges and wallets through which the coin is acquired and stored. Cases of hacking onto coin exchanges and wallets have become rampant, and it is important to know whether the people handling the transaction and storing the coins can be trusted. (These are the: 10 Most Important Resources to a Coin Trader)
Security is a major concern as we can see from the case of Goldman Sachs. Last year, they had indicated they intended to open a coin trading desk by June this year, but they later abandoned this plan. They did so because of the volatility of the arena, but they spotted a need for security. High net worth investors were worried about the security of their coins, and so they started a custodial business, which securely stores their clients’ coins. Other companies such as Paxos are also doing the same, showing us how important security is to coin whales. (Learn the: 5 tips to forming the most promising coin investment portfolio)
Diversify the portfolio
Once the best coins have been picked out, it’s time to sort out and include them into the investment portfolio. There is also a method when it comes to creating an investment portfolio – you don’t just buy as many coins as possible. The trick is to identify which coins occupy which space. For example, BTC, BTC Cash, BTC SV, Litecoin, etc. are all coins for transfer of value. These are the best coins for transferring money between individuals. Then there are those like Dash and Monero that do the same thing, except they have added privacy that appeals to security conscious people. The third category includes ETH, EOS, Cardano, etc. These coins could be used to transfer money too, but their main function is to create a platform for smart contracts. Even the SEC recognized that they are different, and they are not considered securities but rather utility tokens. Finally, are the stablecoins like Tether whose value is tied to the US dollar and they barely deviate in value from $1. They are mainly used to buy and sell other coins when an investor would like to switch between different coins. (Ever wondered: How Did Tether Coin Survive The Coin Arena Selloff?)
All coins fall under these four general categories, and the coins have to compete within these spaces. As an illustration, it would not make sense to buy tens of utility tokens simultaneously without choosing a coin from another space. It then comes down to picking the most competitive coins in each space and investing in those. The advantage to doing this can be seen when comparing coins from different spaces such as in the image below. You can see that the value of Tether (blue line) was inversely proportional to that of BTC. Had an investor bought both, then they would not have suffered huge losses even when the selloff in BTC was at full swing. This is the advantage to diversifying a portfolio.
Even Buffett advised people to invest in index funds and hold them for years to get the best returns, and it turned out he was completely right. Compared to professionals who managed funds, index funds outperformed them because they are diversified and can survive the roughest arena turmoil like the 2009 arena crash. (It’s time: Let's get on with the Brexit already!)
Boy low and ‘hodl’
The simple rule of investing is – buy low and sell high. The idea is to find good coins that have a lot of value but are being undervalued by other traders/investors. Many of the coins today have been undervalued as we saw in a previous post on the future of ETH, and this causing their prices to drop. For a whale, this is the ideal time to invest in the coin arena because the coins are very cheap. Most predictions for coins like BTC and ETH have them reaching highs of $50,000 and $5,000 respectively by the year 2020 and even higher beyond that. Considering these coins’ current prices, the gains to be had are just too enormous to pass up. (Learn more about: The Future Of ETH In 2019 And What To Expect)
As a whale, you must be able to identify when there is a dip in coin prices that is not justified by the actual value but rather by fear. Speculators are always quick to dump their assets at the slightest hint of trouble in the arenas, but whales know how to discern between panic and actual doom. Just take a look at someone like Warren Buffett whose fund invests in only a handful of companies, but in the end rakes in billions. Consider this, the S&P 500 is now down 7% since the year began, and many speculators may have already closed their positions for fear of a crash. However, the same index is up by almost 250% since 2009 – 10 years. For whales, therefore, holding the asset for years is a good way to increase the returns, which is why it was so important to pick coins with the most longevity. (Some of the: ETH Price Prediction Update And Forecast For Autumn 2018)
Are whales’ strategies suitable for everyone?
It’s impossible to match what the whales are doing exactly, but the same strategic steps they take when making investments are a guide to how anyone can be smart about money. The worst thing anyone can do is take chances in coin arenas, and you can see there isn’t any decision coin make that is left up to chance. (Do you know: What Is The Future Of Coin In Finance?)
If you still want to know what coin whales are doing, you will need to identify them in the arenas, and this video shows you how: