Those who hold very large amounts of Bitcoin are often referred to as Whales. Over the past few days the cryptosphere has been buzzing about a Whale wallet holding nearly $1 billion worth of BTC that's suddenly gone active after having been dormant for more than four years, according to a recent post on Reddit.
Reportedly there are around 1,600 wallets in total that have more than 1,000 Bitcoin each, with 100 of these wallets containing over 10,000 Bitcoin, based on research from Chainalysis. Such vast holdings raise centralization fears since, at least in theory, these few investors could easily manipulate the Bitcoin market with just a slight move. What then to make of a suddenly active wallet with $1 billion in holdings? Should investors be worried? Has the risk of Bitcoin volatility suddenly increased dramatically?
Silk Road Redux?
The Reddit post identified the wallet as "Silkroad related," referring to a supposedly now-dead online black market site called Silk Road which was best known for selling illegal drugs and firearms. In 2013 the FBI shut the site down and arrested its founder Ross Ulbricht, who was eventually convicted and is currently serving a life sentence. At that time the FBI seized 26,000 Bitcoins from accounts on Silk Road, worth approximately $3.6 million then.
Though Ulbricht was convicted for running Silk Road, there are reports he wasn’t the only person behind the scheme. So who is activating the Silk Road wallet? Could it be the US authorities who investigated the scandal are now cashing out on the Bitcoin gradually?
Not too long ago the UK police department sold 295 BTC which they say were legally seized from a drug dealer. The court ordered him to forfeit his cryptocurrency which was stored in a hardware wallet. The police reportedly got to keep 18.8% of the sale proceeds.
These are just guesses, of course. There's been no clear indication regarding who's behind the activity. The only thing the cryptosphere does know is that something that could potentially influence the price of the asset could be occurring.
The last movement out of the Silk Road wallet prior to the current activity was 4 years and 5 months ago (March 9th, 2014). At that time the transfers to sub wallets occurred in chunks. The chunks were divided over time to 60,000 coins then to 30,000 / 20,000 / 10,000 / 5,000 / 500 and now 100 coins.
During the most recent activity, at least 88 BTC (which is a very minimal estimate) were sent to a Binance wallet. It seems Binance has a user associated with the Silk Road scandal.
Just yesterday, reports surfaced that additional coins were sent to Bitfinex and Bitmex. According to Cryptovest, "some saw the flow of extra BTC on the exchanges a a sign of mass selling." Still, as of this writing there's been no sign as to whether there's anything malicious behind the activity.
Price Crash and Liquidity Issues
Yuriy Avdeev, CEO of blockchain platform CINDX warns that that sale of a large volume of Bitcoin has the potential to crash the price. As well, a sale at such a huge scale is dangerous, he says.
“The main problem of the cryptocurrency market at this stage is low liquidity and as a consequence, a high degree of susceptibility to manipulation. Emission of USDT [Tether] is the reason for the sharp increase in the price of Bitcoin as well as the movement of large amounts of cryptocurrency from "large wallets”.”
As an example, he points to when the movement of the Bitcoin from the Silk Road wallets began. It caused some immediate panic in the market and short-term price collapse. “Such characteristics of the market pose great danger for investors because they cause inexperienced market participants to suffer losses in the short-term and close positions on a negative balance.”
Avdeev stresses that it's important for platforms and governments to protect users from such situations. He believes platforms should also be wary of users who turn over the management of their funds to professional traders who know how to work on a young manipulative market.
In the current unregulated market one can only watch from the sidelines. However, regulators have expressed concerns that there a few wallets controlling the majority of the existing Bitcoin so the problem hasn't gone unnoticed. Ardent observers have been tweeting about the Silk Road wallet activity since earlier this week:
The selling of this Bitcoin will likely have an impact on the market, perhaps even in the short run.