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Cryptocurrency is still very unstable. Bitcoin has been expected to break through its biggest monthly gains and losses. As recently as May 2021, it faced one of a record 37.5% drop, and it often saw a 37% drop in November 2018 and a 40% drop in September 2011. Recently, the price of Bitcoin climbed to $34,805.19 on Monday, June 28. After Mexican billionaire Ricardo Salinas Pliego encouraged purchases, it rose 8% in 2021 compared to Friday’s 5pm Eastern Time. This volatility is a double-edged sword. It is both an exciting asset choice for some investors and a concern for others, hindering widespread adoption.
One factor that contributes to the volatility is the large number of whales in the crypto market-this term refers to people who hold a large number of specific assets; people who hold at least 1,000 bitcoins are considered whales. The sheer size of their holdings means that when they decide to sell, the market is suddenly flooded with this asset, causing prices to fluctuate wildly.
These powerful investors exist in all asset classes, but cryptocurrencies are particularly vulnerable to attacks because there are more whales in a sea of decentralized exchanges, but smaller trading volumes and lower liquidity. Without sufficient fluidity, these whales are trapped in a well-known swimming pool. Once they move, they are destined to make huge waves in the market. Because each exchange is isolated in their small liquidity pool, they are very susceptible to whale movements.
For this, we need to solve the mobility problem by merging all these isolated small swimming pools into one big ocean. The trading technology of the crypto market has not caught up with the maturity and stability of foreign exchange, and foreign exchange uses over-the-counter trading, which is how it minimizes the impact of large buying and selling orders that can greatly promote the market. If the crypto market integrates it, this can significantly increase the liquidity of crypto transactions and therefore stabilize pricing. Now is the time to deepen the liquidity pool.
The impact of whales
Fundamentally, cryptocurrency assets are still very concentrated. The sudden growth of Bitcoin means that a large part of the market is owned by a small number of traders who are lucky enough to buy a large amount of Bitcoin when the price is low. Currently, about 40% Bitcoin is kept in approximately 2,500 accounts.
The same is true for altcoins.For example, someone broke the news in February this year Hold Dogecoin 28%, Which has soared nearly 1,400% since the beginning of this year. Individuals with such a large proportion of the market have a huge impact on prices.
The influence of these whales is visible. When whales are sold, the price of cryptocurrencies falls in a spiral. April 18dayFor example, a trader transferred 58,814 BTC (worth more than $3.3 billion at the time) from Binance to a private wallet, and the price fell to a low of $51,541 per unit.
Although whales clearly affect the price of Bitcoin, they have a greater impact in altcoins because of their lower market capitalization and poor liquidity.Not long ago, the price of Ethereum plummeted by more than 50% on the Kraken exchange. $1,628 to $700 in minutes.
Kraken’s CEO attributed this to a sell-off, saying “maybe a whale just decided to throw away his life savings.” Ethereum’s drop of $1,000 in three minutes is remarkable, which proves even the largest transaction volume. It may also be shocked by the great whale movement.
Liquidity shrinking
Considering that diversified liquidity exacerbates price volatility, the market must pay attention to the fact that liquidity is getting worse, not better.The number of bitcoins on the exchange is 20% decrease in the past 12 months. Slowly but surely, liquidity is drying up and the pools are getting smaller and smaller.
A bullish cryptocurrency market means that people hold assets and just watch the price rise. There is evidence that the number of whales is increasing, and the number of individual holders of more than 1,000 bitcoins has reached a record high of 2,334. Therefore, despite increasing popularity, the number of cryptocurrencies that are changing hands is still very limited and declining.
What causes these problems is that large investors are entering the cryptocurrency market in large numbers. Institutional investors, hedge funds, high-net-worth individuals and companies-most famously Tesla-are all seeking to hold and trade crypto assets. As purchasing power increases, the order size may increase and increase the whale’s influence.
We cannot prevent these big players from influencing crypto trading, but there are solutions to the potential lack of liquidity that exacerbate price volatility.
Unified pool
In order to combat the price fluctuations caused by whales, the market is slowly adopting strategies from other asset classes. For example, many OTC brokers target crypto whales to trade digital currencies over the counter because they can obtain more liquidity than exchanges.
However, in order to be able to buffer large orders and prevent sudden and dramatic price changes, exchanges should resort to trading techniques already mastered by other markets. For example, the foreign exchange market has long provided straight-through processing functions on the global liquidity network, using smart order routing to aggregate and process orders. This infrastructure allows global price discovery, regardless of the transaction channel, to provide all market participants with the best bid and ask prices.
In fact, it allows exchanges to take advantage of the liquidity of other exchanges, including the largest exchanges in the industry. Using this model, the exchange can consistently provide traders with the best prices and absorb the impact of the giant whale splash by drawing liquidity from the wider market. Multiple separate pools are connected to form an ocean.
Only by solving these problems can cryptocurrencies get rid of the volatility caused by a large number of big fish in a lack of depth in the market.
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