Dormant Whale Wallets Are Waking Up

Every once in a while, something really weird happens in crypto. Sometimes this takes the form of meme coins pumping to the moon for no apparent reason. Other times its multiple prominent crypto CEOs resigning in quick succession. Other, other times, its exchanges accidentally transferring millions to unsuspecting and undeserving customers.

Now, we can add a new situation to the “what the heck is happening” list.

Multiple dormant whale addresses are waking up and moving funds around. By dormant addresses, we’re talking wallets that haven’t moved a muscle in over a decade. And by whales, we mean people with addresses containing tens to hundreds of millions of dollars in crypto.

So yeah, definitely a “what the heck is happening” situation.

What’s going on? Is it a coordinated scheme by veteran whales to dump on us innocent retail investors? Is it a mass hack? Something else?

Let’s investigate.

A Brute Force Hacking

One popular theory for the sudden whale awakening is a massive hack of an old wallet generator.

Wallet generators are the tools that generate seed phrases for wallets. This is crucially important because seed phrases are how wallets are secured. If a hacker figures out your seed phrase, you can kiss your digital coins goodbye.

Unfortunately, sometimes these wallet generators aren’t as random as they should be. This leads to a combo of seed phrases that are more likely than others, which is much easier to brute force hack (using a computer to guess the seed phrase over and over until it eventually guesses it).

Considering that all the wallets being activated are very old, it is quite possible that the wallet generator used to generate their seed phrases was recently hacked. Perhaps it even has something to do with the LastPass hack or Apple vulnerability.

A Mysterious Drain

Another possible explanation is the mysterious wallet-draining operation uncovered by Taylor Monahan, the founder of MyCrypto, a wallet manager for ETH.

What Taylor found is that since December 2022, over 5000 ETH has been drained among the wallets of crypto veterans for no apparent reason. Nobody can figure out why this is happening, how it’s happening, or who is making it happen.

It would make sense that longterm holders are spooked and perhaps making changes to their security before they are a victim.

This is a tough one to prove because nobody knows how this hack is being done, but considering that the victims in both cases are veterans, there is some potential here.

Gox And Silk Road

Also in the realm of possibility is that these moves have something to do with the infamous crypto exchange Mt. Gox and dark web marketplace Silk Road.

Even without knowing too much about current events, this theory does make intuitive sense. Mt. Gox and Silk Road both lived and died in the very early days of crypto, with Silk Road being shut down in 2013 and Mt. Gox closing in 2014. This explains a) how these wallets could obtain so much bitcoin and b) why they were dormant for so long.

Moreover, the Mt. Gox payouts started back in March. Even if these wallets don’t have anything to do with those directly, it is possible that old whales are waking up to react to the repayments. Relatedly, the Feds seized billions in missing Silk Road bitcoin back in November 2021, and have stated that they would be dumping those findings this year. Why they would sell now and not back in November 2021 when the price of bitcoin was at all-time highs is anybody’s guess.

Overall, this is a fun theory, and one that is actually quite plausible. The only problem with this theory is that dormant ETH holders are also waking up, and neither Mt. Gox nor Silk Road had any involvement with Ethereum.

A Story To Follow

Ultimately, we’ll never know for sure what’s going on until one of the wallets comment publicly. But that lack of clarity doesn’t mean you shouldn’t pay attention to these moves.

As we said before, these are wallets with massive amounts of coins. If they decide to suddenly dump their holdings, the prices of our digital assets are going to take a hefty hit.

Until the reason for these moves is confirmed, we recommend:

• To consider fortifying your security by moving your funds to a new wallet with a new seed phrase. This applies especially if you have an old wallet, and especially if you’re a whale.

• Keeping an eye on on-chain analytics, either directly or through on-chain detectives on Twitter (such as Whale Alert and Lookonchain).

What It Means For You

Beyond the novelty of whale’s moving their coins and the questions that naturally arise (like, how have they been able to hold on for this long?!), you might be wondering how this actually impacts you.

The truth is, if you are holding for the long term, it really doesn’t.

But if you are someone that is interested in short term price movements, dormant whale’s moving their coins can create volatility in the market. That’s because these coin movements can lead to fear that large tranches of tokens are about to be sold, thus causing the price to go down.

In the end, we suggest simply being a whale watcher and ignoring the short term volatility that their movements cause.