by @AKWAnalytics
There is little doubt that the biggest topic of conversation amongst altcoin traders these days is the idea of “whales” (no pun intended). They have become mythical creatures that wield great power in a reality that those of us that are mere mortal traders could not possibly imagine. Nothing illustrates this better than the rise of “bearwhale”, a supposed bitcoin early adopter who decided to sell 30,000 BTC over the weekend on the open market (BitStamp), below market price, for a whopping $9 million.
The appearance of the 30k wall shaved 10% off of the BTC/USD price in a matter of seconds, although it was eventually eaten up later that night. Even though 10% might not sound like alot to us cryptogeeks, it is A TON in traditional finance. The other side of that token (again, no pun intended) is that a year ago, that kind of sell wall would have taken 20 or 30% off of the price.
This is what liquidity does; this is its value. It allows market participants to act freely according to their utility without causing harm to their self-interest. It’s a beautiful thing. That being said, liquidity is a double edged sword as the lack of it can be deadly (ok, near deadly), as can be seen by the recent action in one of the CryptoNote coins, BoolBerry (BBR).
Let me start by saying that I like the coin, and have no issue with “crypto_zoidberg” (CZ, the BBR developer). The wallet works well (and on mac!), transactions are quick and anonymous, the blockchain is smaller than XMR’s, and there are (were?) a few early bitcoiners who are interested in the project.
Another piece of background information that is key to understanding what happened is that much like Monero (XMR), BBR is traded almost exclusively at Poloniex (Polo). This concentrates liquidity (good thing), but also makes the market vulnerable to manipulation and emotion if the total pool of liquidity is too small even when concentrated. For future reference, there was ~235BTC in total buy orders on the books at Polo at this time yesterday (10/6/2014).
So, fast forward to today when CZ posted in the BBR Announcement thread on bitcointalk (BCT) the following correspondence:
What follows can only be referred to as a shitstorm as 200 of the 235 total BTC bid were pulled from the books at Polo. What happened next is best told by the chart:
There is not much left to be said. The fact that a few (or maybe even one) market actor was able to pull bid support which resulted in a 75%+ drop shows that liquidity is really the only thing that matters in these very young altcoin markets, at least in terms of risk management. While there can obviously be tremendous gains when coins go up 2, 5, or even 10x, we must be just as cognizant (if not moreso) of the fact that they can also go to zero.
While I am not certain of the future of BBR, I am certain that if any cryptocurrency still in its infancy wants to survive, the community funding must be adequate, and more than a few whales must be involved. Full disclosure, I am long BTC, XMR, and BBR.
Cheers and happy trading!
@AKWAnalytics
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