Price Manipulation Potential

Whales are large holders of Bitcoin that can easily move the market by buying and selling at strategically favorable times. Due to the nature of the cryptocurrency market, which is very sensitive, their trades have immense consequences on liquidity and price action. An example would be a whale intentionally depressing the price by selling any decent volume of BTC within an extremely short frame of time. This sudden increase in supply can drop the price of the asset, making small investors panic and sell. Once the price has fallen to a level where the whale wishes to repurchase, they can buy back the BTC at a lower price, thus increasing their position at cost​.

Large buy orders are also used by whales to move prices upward. During this, there could be a temporary spike that attracts retail investors. This momentum then gets used for profit-taking, wherein the whale actually sells his holdings into the rising demand. Such actions could bring about liquidations for the leveraged traders also, which amplify wild swings in price either up or down. While not all whale activity is manipulative in intent, their market influence allows them to exploit volatility for their own gain. Such steps underline the risks of a market when four or five big players are in a position to influence the crucial trend in the price movement.

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~ Nesaty