What is "BearWhale"?

This means a trader with a substantial amount of bearish capital (believes the price will fall) on the price of a cryptocurrency.

On this day four years ago (Oct 6th, 2014), when the price of Bitcoin was near US$330~, an anonymous Bitcoin trader placed an order on Bitstamp to sell 30,000 Bitcoins at $300 (US$9mn). The chart from that day can be seen below. To explain why this event continues to have such iconic status can only be realized by putting it into the perspective of today's market. Bitcoin was trading about US$29mn/day on average at the time (Using October 2014 data), so the BearWhales sell order was 31% of an average day's volume. The equivalent percentage volume today would be like selling 189,000~ Bitcoins based on the current US$4bn~ daily average volume!!

For those wanting to relive the days around this event;
checkout the Youtube link from @flibbr that lets you re-live the move from $385 down to $285 tick by a tick:
https://youtu.be/X0hpNAUTK3c
and Reddit users shock & confusion as the event unfolded:
https://www.reddit.com/r/Bitcoin/comments/2ieoit/introducing_the_legendary_bitcoin_whale/
and a good summary of the whole event from bravenewcoin: https://bravenewcoin.com/insights/the-legacy-of-bitcoins-bearwhale

While the seller was initially unknown, he later discussed the episode anonymously on Reddit, posting a Bitcoin address and signed message as cryptographic proof that he was in control of at least 36,000 bitcoins in 2013 and 2014. The seller had bought into Bitcoin “after a series of bad experiences with the banking system,” and as a result, invested “most of the life savings” into Bitcoin at a price “around $8”. “I could have gotten a better price if I spent more time working the order, I guess,” he told Reddit. “I put up the wall because I didn’t want to just sit in front of the computer all day.”

Lessons Learned From BearWhale

  1. Tendency to overestimate the knowledge &/or skills of others.

The first lesson for me is our tendency to overstate the knowledge & skills of those operating in areas that we do not today necessarily understand. I spent 20Yrs of my career working in finance. I saw some of the greatest traders & hedge funds ride waves of perceived infallibility, creating a god-like status around their performance & operations in the public eye. The reality is that many of these are not around today. Of course, some individuals & firms seem to consistently, over a long enough time frame, but these are the few, not the many.

We naturally assume that someone who decides to sell 30%+ of a day's volume in Bitcoin simultaneously through a single exchange must have some information we are not. The reality, in this case, was that “I put up the wall because I didn’t want to just sit in front of the computer all day.”

We can draw strong parallels here with some of the ICO-related selling pressure we have seen during the 2018 bear market. Many people naturally assume that an ICO team should have a strong sense of managing their Treasury holdings. In reality, while engineering heavy, the team may have nobody who has traded or worked a portfolio before. Therefore, it should be no surprise that we have seen some genuinely incompetent risk management trading practices over the last few months.

2. Perception is everything.

If you were told that someone bought an asset at $8 and sold it at $300, you would naturally perceive that as one of the most significant trades in history. However, if you were told that someone sold Bitcoin at $300 after buying at $8~, having watched Bitcoin trade above $1000~ in the interim period, your opinion would change immediately. If you were then told that this same trader bought Bitcoin at $8, went through the 2013 bull market, which saw Bitcoin trade to the mid $200’s, then watched it collapse 70%~ to near $60, before watching it rebound to nearly $1200~, your perception would change again.

The reality is that as spectators of markets, we are rarely in possession of all the information regarding other individuals trading—our perception changes based on our usually incomplete knowledge. The undeniable fact is that very few investors living today can claim to have invested $200k+ in an asset they sold at a life-changing $9mn! Reports that this same trader then went back into Bitcoin again at $1000~ only to ride out the next bull market is another massive testament to this trader. In summary, this BearWhale was a lot smarter & maybe a little bit luckier than the initial story suggests, with its narrative focused on panic selling the lows.

3. Timing matters but not as much as you would think.

Those who started to invest in Bitcoin in January of this year may be sitting on 50–60% losses. If they invested 3mths earlier, they might be sitting on 50%~ gains! Time is everything. So our perception of the person sitting on 50%~ gains is very different from the person who bought just 3mths later and is down 50–60% on this short time scale!.

Since 2010 there have been four major bull & bear markets. The first saw a peak in June of 2011. A 90%~ crash followed this. Buying near the $29~peak of that year in June and watching it collapse to near $2~ just 4mths later must have been horrible. Imagine the perception of that trader at the time. However, if they had managed to hold for just 2Yrs from the time they bought, they would have been sitting on a 7x~ return to the next peak (Chart below). Buying the November lows of that 2011 bear market would have given them 110x return over 17mths!

For those that invested at the peak of the next bubble in April 2013 at $230, they would be sitting on a 70%~ loss less than 1mth later! That wasn’t very smart? However, holding Bitcoin for just another 6mths~ to the next bubble peak would have given this investor a 4x~ return from that purchase at the April 2013 high. Had the investor managed to buy the trough during that brief 70%~ pullback in April 2013, they would have a 17x~ return from drain to the peak.

Anyone buying the peak of the 3rd bubble in Dec 2013 at $1150~ would need to wait for almost another 3.5yrs to break even, but by holding into Jan 2018, they would have captured a 17x~ return. Had they bought the trough of that period in Jan of 2015, some 80%~ off the previous peak, they would have achieved a maximum return of 110x~

SUMMARY

We are currently down 65%~ from the most recent bubble peak. While psychologically draining, the current bear market looks very similar to the many that came before it. While historical price action guarantees future performance, neither should we put this pullback out of context.

There will always be cries that Bitcoin is dead (313 obituaries for Bitcoin & counting https://99bitcoins.com/bitcoinobituaries/ ). These are great headline grabbers but have historically been horrible investment advice.

David Wills, COO from Kenetic Capital, recently wrote a good post that encapsulates much of what I see happening behind the scenes. David describes what could be the most bullish bear market of Bitcoin’s history (https://medium.com/fintech-weekly-magazine/the-year-institutions-took-notice-of-crypto-e0c631947db ).

One of the first articles that I read about Bitcoin was from Wences Casares, CEO of XAPO. His key message was only to invest in what you can lose. It's the best advice I ever got. Many others have since followed his mantra, which often sees people recommending an investment in crypto/Bitcoin of no more than 1–1.5% of a person's net worth. If the Bitcoin perpetual naysayers are right, you lose 1–1.5%~. Suppose the technologists & crypto evangelists are correct, and history bears some guide for the future. In that case, you have the potential to make a meaningful difference to your net worth with a small initial outlay.

DISCLAIMER; This post and its contents should in no way be considered investment advice. We may individually hold positions in some of the assets we discuss. Any projections, conclusions, analyses, views are to be considered hypothetical & for informational purposes only & not meant as recommendations for investment. Anyone considering a crypto investment should only invest what they can afford to lose. You alone are responsible for evaluating the risks & merits of our content.