How Crypto Whales Move Markets

DISCLAIMER: This is not financial advice; the article is for educational purposes only. These observations, takeaways, and predictions are based on my direct experiences with Blockchain and Cryptocurrencies for 10 years and have seen it evolve, crash, morph and grow. I am not a qualified financial advisor, please consult a professional for investment advice. I am also not advocating investing decisions based on any specific analysis mentioned in this article.

Introduction

Investing in cryptocurrencies is a relatively new trend, it requires looking at these assets through multiple lenses. We must analyze technical chart indicators like support levels, resistance, bull flags, Bollinger bands, and RSI, etc. When everyone, including seasoned institutional investors, uses the same indicators and tools to take profits ahead of time, leaving average retail investors high and dry. While investing in an array of tools and an arsenal of sharp minds are things beyond an average retail investor, there are small things one can do like going beyond basic technical analysis, understanding crypto fundamentals deeper, analyze the coordinated media FUD quickly for its content, timing, and intent, etc.

One of the bigger factors for investing in cryptocurrencies is about understanding whale movements through on-chain analysis, there is limited knowledge and proficiency around this important, yet ignored body of knowledge but many simple and useful tools around it are available. In this article, let us understand the transaction dynamics powered by whale movements to maximize value on returns and avoid getting REKT.

Whale Definitions

Individuals or institutions who hold large amounts of coins of a certain cryptocurrency are known as whales in the crypto world. As they hold large amounts of coins, they become powerful enough to manipulate the valuation of the specific cryptocurrency. Whale movement is a simple signal that can have a colossal effect on the price of a cryptocurrency depending on the size, magnitude, source, and destination of the transaction.

Bitcoin whales are like other majority asset holders: their movements have outsized impacts on the bitcoin market, either through increased volatility, decreased liquidity, or a combination of both.

Whales typically put massive sell orders on the books lower than other sell positions in the market creating volatility following which prices fall triggering a chain reaction. Stability returns when whales pull their large sell orders off the market or create enough panic selling to land the price to where they wanted and accumulate more coins, this tactic is often called “sell wall”.

The reverse “sell walls” is also a tactic used by whales i.e., buy unreal levels of coins at higher prices to artificially inflate the price of a cryptocurrency which forces bidders to raise the price of their bids, so the sell orders fill their buy orders. The smaller retail investors get caught in FOMO (Fear of Missing Out) if whales execute this method correctly deploying very large amounts of capital.

These manipulations are considered illegal in more regulated stock markets and related exchanges, but with the relative newness and immaturity of the crypto world, these are still put to work, and manipulation signals have been visible on more than one occasion. Understanding whale movements can keep us ahead of the game and helping catch these signals early enough to not get manipulated or anticipate non-manipulative market moves in a smarter manner.

Whale Movement

Understanding whale movements, signals, and behaviors are key to cryptocurrency investing. One needs to have basic familiarity with on-chain analysis. Most cryptocurrency blockchains are publicly viewable and you use blockchain explorers to see most transactions on them. The level of transparency provides information of items much more than transaction confirmation or its integrity. For example, you can see wallet ranking based on ownership giving insights into supply, distribution, transaction volume, wallet concentration.

If supply is concentrated amongst a few wallets, there is a risk of a price crash of that coin when those wallets sell. Blockchain explorers also tell you what people are doing with their coins e.g., holding, moving on an exchange, moving off-exchange etc. Most blockchains will also label wallets belonging to centralized and decentralized exchanges making access and synthesis of this information easier. Supply on exchange indicates intent to sell, supply off-exchange signals intent to hold, a few clever maneuvers can also make it possible to identify wallets of coin founders, rich individuals, and institutions to preempt buying and selling behavior.

Some investors are more technically inclined than others, but for an average retail investor, this is a manual and laborious process and makes sense to use tools like Glassnode or Cryptoquant as on-chain analysis platforms. They are easier and clearer views than technical analysis e.g., I am a big fan of Glassnode’s HODL Wave indicator as certain HODL waves peak, it signals selling by whales or selling in volumes. Multiple kinds of whale movements matter in cryptocurrency investing, let us examine a few common patterns.

Figure 1: Transaction Dynamics from Whale Impact

Wallet to Exchange

When cryptocurrencies are sent from regular wallets to exchanges on a blockchain explorer, it usually means the person wants to sell it. It does not matter for smaller transactions, but a magnitude of hundreds of millions will create sell pressure and crush the price. On the other side, if millions of dollars of a cryptocurrency are sent from exchange to the wallet, they are unlikely to be sold soon.

Exchange to Wallet

If there are sufficient whale movements off exchanges, it fuels positive price action, and effects are reversed if movement is the other way around. In addition, if hundreds of millions move into stablecoins on exchanges, it means whales intend to buy and the market is about to pump. If they move off exchanges, it signals to sell or no investment. Stablecoin movement off exchanges also signals a temporary downturn or even a bear market.

Exchange to Exchange

Exchange to exchange movements are all about arbitrage i.e., whales taking advantage of a small difference in price between two exchanges, and because they have so much capital that small difference offers a sizable return in fiat.

Wallet to Wallet

Finally, there are wallet-to-wallet movements, these are very misconstrued. Many large investors don’t use exchanges, they go OTC (over the counter). The size of investments could otherwise stir up markets and fluctuate prices. When you see hundreds of millions of dollars go-between wallets, they are generally OTC trades, and it is never clear whether it is a buy or a sell why Tesla’s BTC buy did not impact markets until it was publicly announced. When bitcoin dumped, none of the mega buys from Michael Saylor’s Microstrategy moved prices upwards given they were OTC accumulations. Long story short, wallet-to-wallet movements typically have negligible price impact in the immediate term.

False Alarms

While all transaction dynamics on whale movements have clear boundaries, a few anomalous factors can create false alarms or misleading signals overlooked by average investors and traders. Let us examine these.

Size of Transaction

Tools create heavy bias on what gets categorized as a whale transaction. For example, “whale alert” appears to capture all transactions on 13 Blockchains > $1m creating an issue with the impact it could have on a given cryptocurrency because it does not measure the phenomenon of Market Depth.

Market Depth

Market Depth indicates the money which pushes the cryptocurrency on a specific exchange. This data is available on sites like Coinmarketcap, in their markets section. The more fiat it takes to push the price by 1-2%, the greater the market depth. For example, if $10m of BTC moves from wallet to exchange with a market depth of $20 or 30m, it will have negligible impact to the downside even if all that BTC is sold immediately. But altcoins have market depths in single-digit millions or less and movement of that size could plummet the price of that altcoin by bleeding order books dry.

Altcoin whale movements are so small in fiat terms they are not even picked by whale tracker tools even if they impact the price. Market depth is an important variable in the whole equation of tracking movement and not immediately assume capitulation or moon tracks even when you see whale alert tools tweeting or pushing a telegram message.

Whale Age

Altcoins are heavily indexed on BTC, a BTC whale movement affecting its price can hammer an altcoin even if no whale activity occurs on that specific blockchain. There are several whale movements every day on BTC, ETH, and other top cryptocurrencies of all sizes with a predictable impact on prices. A second factor not intuitively correlated with whale movement is the age factor of wallets, older, dormant wallets transact for the first time, and selling off creates a major wake-up and shake-up. This indicates prices are high enough that even the most OG HODLers will now sell. These are reported in the news inconsistently, given a lot is smaller and wallet to wallet. However, in this cycle when we approach the $100K zone and older wallets move BTC to exchanges, it indicates cycle top.

Tokenomics Factors

Whale transaction impact also hinges on the tokenomics of the cryptocurrency and source of the wallet transacting. For example, the largest Altcoin holder selling 10 million Altcoins and a smaller wallet doing the exact same thing are different. Investors should abandon ship if there is consistent selling from large wallets of an inequitably distributed coin.

Take time to identify wallets belonging to significant holders or teams working on specific cryptocurrency projects, some wallets are public e.g., Vitalik Buterin of Ethereum, when you see movements on exchanges, it may be time for investors to sell too. It is hard to ascertain if these coins are moving to an exchange or a cold wallet, some even mask their selling behaviors. Hence, take time to analyze this before concluding many people misread these movements and activate actions that could be counterproductive.

Smart Money

Institutional investors aka smart money moves are crucial vectors in any investment category and cryptocurrencies are no exception. Most institutional investors are trained to understand and analyze the behavior of retail investors to major events, news, and whale movements. For example, to the average retail investor heavy minting of stablecoins usually means Bitcoin will pump upwards, but this is far from the truth. Stablecoins are minted and burned down on supply and demand, this is essential because if there's too much or too little USDT compared to demand it will break the dollar peg upward or downward. Hence printing of USDT or USDC does not always mean prices will increase, it only indicates a spike in demand.

Massive BTC orders go OTC (over the counter) without minting stablecoins, these factors are typically ignored by average retail investors who assume that stablecoin production indicates price movement upward making them soft targets of manipulation by big investors who can push prices up by a few percent following a stablecoin mint creating an illusion of an event. Retail can FOMO into the pump and get dumped by smart money just like whale movements on and off exchanges can create a mirage.

Smart money knows the typical reaction of retail investors, hence reacting to every signal without proper analysis can get retail investors REKT. The arbitrage between smart money and dumb money is also the basis of the Wyckoff distribution running its viral loops on YouTube at the time of writing this, a channel called Uncomplication demystifies this 100-year-old principle there. It is worth understanding and being cautious of Wyckoff distribution before FOMO buying or FUD selling.

On-Chain Metrics

This is an area of extensive importance to track whale movements and beyond, I have tried paid and unpaid versions of these over several years. Paid subscriptions such as Glassnode, Messari, Whale Map, etc. synthesize information better and make life easier. Free tools like Whale Alert also provide similar information but less synthesized, searchable, and indexable. Tools are only as good as the person using them anyway, many crypto investors, traders, and even speculators do not know about these whale tools and transaction dynamics.

Concluding Thoughts

The universally accepted definitions of whale movement, the scope of tools, and their outputs have a large variability. The most definite way to describe a whale movement is any transaction large enough to disrupt the underlying economic logic of a cryptocurrency. Whales and whale movements could also be mutually exclusive, knowing which wallet (if public) the transaction originates from can further qualify this. During the May 19th, crypto mayhem Vitalik emptied his public wallet, but then it was just moved to a cold wallet. It is also easy for whales to play poker with this technique, although there is no conclusive evidence of this being done.

Smart crypto is always trying to outsmart retail crypto into selling into them. At the cycle top, if you see dozens of whale transactions moving on to exchanges, it is sell time I guess.

References:

Coin Bureau

Glassnode