How Do Crypto Whales Affect the Price and Why Should Traders Track Them?

Hello, fellow traders!

Cryptocurrencies are entering our lives more and more actively. In today’s article, we will touch on a very interesting topic related to large holders of the corresponding assets, primarily bitcoins. They are called "Crypto Whales".

We will figure out who they are, how to track their actions, and we will also try to benefit from this information. As usual)

It is hard not to notice a new trend in the Forex market ­– cryptocurrencies in the lists of instruments offered by brokers.

On an international scale, no more than 20% of Forex companies trade cryptocurrencies, but in a year a kind of "Cambrian explosion" awaits us. It consists of a sharp increase in:

The world’s largest investment banks have decided to publicly support trading in digital assets, which will appear with liquidity providers and will automatically become available to clients of currency brokers.

Many of us, for various reasons, have a negative attitude toward these instruments. They are difficult to understand technically, their growth looks like hype, and volatility significantly complicates the use of indicators for intraday trading. There is no need to talk about fundamental analysis at all - as of today, there are no separate economic indicators for Bitcoin and altcoins.

Despite the disadvantages listed above, there is one important feature present in almost every cryptocurrency. It greatly simplifies analysis, forecasting the movement of a digital asset, and trading. A distinctive feature of cryptocurrency is the accessibility and transparency of all actions and deals of large investors, which in traditional markets is considered insider information.

Digital currencies, like the national currencies of Forex, called by crypto traders in slang "fiat", are only part of a complex ecosystem.

Unlike Forex, cryptocurrencies do not have Central Banks; their monetary policy is determined by the blockchain algorithm or by a digital democracy community (DAO), where each coin holder has the right to vote under certain conditions. This is what is called the digital currency ecosystem, which includes, among other things, the mining method, the type of consensus, and so on.

Unlike fiat, whose rate depends on the words and actions of representatives of the Fed, the ECB, and other global financial regulators, inflation, the size of issuance, and even the distribution of coins held in hands are known in advance to every Internet user.

The code of any cryptocurrency is openly posted on the developers’ website or on GitHub, the largest web service for programmers, where the final issuance and the speed of issuing blocks with new coins are specified, making it possible to calculate inflation.

The same information in a simple and accessible form, together with price statistics, can be found on the CoinMarketCap website. By clicking the mouse on the name of the cryptocurrency of interest, in the card that opens you can see (using Bitcoin as an example):

The last tool helps determine not only the speed of block assembly, but will also show the transaction history of each coin, the deposit size of each wallet, and the movement of the digital  currency as a whole.

The main principle of a cryptocurrency blockchain is complete publicity and transparency, which opens up the possibility for anyone interested to calculate the actions of crypto whales and holders.

Crypto whale (Crypto Whales) - holders of cryptocurrency with large volumes of coins in their wallets.

Holder (owner) is a more general concept that applies to all traders who use the "buy and hold" strategy.

Unlike Bitcoin, in a number of cryptocurrencies there are "holders against their will". They are forced to "freeze" funds for a certain period as collateral (Stake). This guarantees their "honesty" when confirming transactions because of the threat of losing funds in the event of manipulation.

Thus, stakers are a certain type of miners who receive a reward for assembling blocks with cryptocurrency transfers in exchange for a share of cryptocurrency placed as collateral.

If traders in the Forex market are forced to analyze the order book or wait for the Friday release of COT reports, then on most digital currencies tracking the actions of large account holders and the movement of crypto capital is not particularly difficult. In this regard, the blockchain truly serves as an open book of all transactions in real time.

The rate of an individual cryptocurrency, like a stock share, depends on the amount of free float, assets in free circulation. Crypto Whales, as a rule, accumulate coins in a wallet for the purpose of long-term holding, justified by the history of growth in digital currency rates, which can be assessed by the dynamics of their total value.

According to statistics available on the CoinMarketCap website, it is clear that the market capitalization 8 years ago amounted to $1.63 billion. Now the value of all assets is 1000 times greater, with 45% concentrated in Bitcoin and 25% in the first three major altcoins.

The thousandfold growth of cryptocurrencies has turned crypto whales into convinced holders who, by purchasing assets and holding them, create a free-float shortage in the market that pushes the rate to new heights. And for the same reason, digital currencies with a blockchain where "stake" is provided are also growing.

The desire to earn from "freezing" cryptocurrency increases its price because of active market buying. Staking often stimulates the emergence of crypto whales, since it is the size of the deposit share under the blockchain algorithm that guarantees a higher frequency of receiving rewards.

An increase in the balances of crypto whale wallets serves as a signal confirming the current growth of the cryptocurrency market, but it does not give traders the advantage of a leading indicator.

It is much more important to track the behavior of large holders at the moment the cryptocurrency market falls. If a price decline leads to crypto whales reducing their deposits, place a stop-loss as close as possible to the held position or try to exit it, since crypto whale selling can lead to a market crash.

An active increase in deposits at "whale" wallet addresses while the market is falling indicates that the bottom is near. Of course, you should not count on an instant reversal when the described divergence appears. A trader should split their entry into parts and be ready to average the position.

Large wallets can be found in the statistical selections of blockchain explorers. These are special services containing not only the history of all transactions, but also an additional set of their own research. For example, on the bitinfocharts website, which supports Russian, large addresses are located in the "Explorer" section.

Let us choose the Bitcoin explorer as an analysis example. As can be seen in the picture below, the service has already broken the analytics into lists for tracking the actions of crypto whales. All large wallets are in the Richest addresses section (1). The explorer shows the top 15 whale addresses; their expanded top-100 ranking can be seen by clicking the list name.

Below is a selection of the top 100 addresses (2), chosen by transfer amounts over 24 hours. This is exactly the statistic used to promptly track the actions of crypto whales. The "In" column shows how many transactions (over 24 hours) the wallet received. The "Out" column shows the number of transfers out of the wallet.

Accordingly, incoming sums are the final amounts of all top-ups, while outgoing sums are the deposit spending that interests us. Let us take a close look at the current table.

Discard at once zero balances that were received and spent on the same day (marked with a yellow highlighter). The cryptocurrency came in and immediately left, which plays no role at all.

Do not pay attention to wallets with a high number of top-ups and expenses per day; a trader should be interested in holders with a large deposit who received a large transaction and did not spend it anywhere during the day, or vice versa, made a large withdrawal without receiving funds from outside. Such accounts are easy to spot by empty fields in the "In" or "Out" column:

The figure above shows that three addresses were found by this system in 24 hours. Two addresses topped up their wallets with large sums of 23 BTC and 10 BTC, and one address withdrew 9 BTC. Obviously, on the day of the analysis, sell-offs prevailed over BTC purchases.

The blockchain lets you find out the time of a transaction by clicking the link to the crypto whale wallet address.  The deposit we are observing was topped up on January 30, 2021. The owner decided to get rid of the entire amount on May 25 at 00 hours 41 minutes.

Let us compare this with the trend on the BTC chart. The sell-off coincided with Bitcoin's attempt to update the previous day's high. It is worth listening to the crypto whale and also locking in part of your positions. The chart shows that they bought BTC at this year's low, held the position despite a 40% decline, and have now dumped it on a bounce.

As can be seen from the analysis example, large trades should be analyzed promptly; in this a trader will be helped by the Whale-alert service, which publishes trades in dozens of cryptocurrency types on its Twitter account. The company provides streaming information on transfers from $20 thousand, supplying them with an importance mark and a decoding if the wallet Recipient/Sender is known.

Decoding wallet owners is important in order to exclude cryptocurrency exchanges from the analysis, because they keep the deposits of all their client traders in single addresses. Previously, their size correlated with the rise and fall of cryptocurrency prices, but 2020 introduced unpredictable adjustments.

As the Bitcoin price and the cryptocurrency market as a whole grew, the wallet balances of all the largest exchanges fell sharply. A similar divergence case was recorded in 2016, which allows some analysts to claim it is a signal of a mega-growth wave, but the fact remains: cryptocurrency exchange wallets are not suitable for the role of crypto whales.

Analyzing the total number of whale accounts is another way to forecast the bottom and the depth of a market fall. Similar overall statistics are available on the Glassnode website. Select the "Charts" option, the cryptocurrency type, and expand the "Addresses" menu:

The service offers 38 types of blockchain crypto account analysis, but the most informative is the number of addresses with a balance above 10,000 BTC. Notice how, historically, large players exited in advance before long-term peaks, the renewal of which the market then spent years on.

What stands out on the chart is the panic selling of Bitcoin by crypto whales during the 2018 crypto winter and the significant volume of purchases during the March market crash in the 2020 "coronavirus crisis."

The problem is that the service does not show the statistics of the last year for free, but they would surprise an analyst. For the first time in the history of the cryptocurrency market, owners of huge BTC accounts used an unprecedented market rise for active sell-offs of their assets.

In the cryptocurrency market, institutional clients are most informatively represented in the Tether system, which issues USDT tokens pegged to the US dollar, and in the trusts of the Grayscale investment fund. Despite a relatively small share of investment, just over $100 billion, statistics show that the movements of this capital in the form of Tether issuance often occur before major trends or a reversal of the digital currency market.

Tether is notable for working directly with major over-the-counter services in China, which buy up 68% of USDT token issuance. It "leaves" in large batches of several hundred million per tranche.

The moment of a large issuance can be tracked in the Whale-alert service. Be careful: what matters is the fact of issuing new coins, not any transactions. Such messages are marked with a sign in the form of stacks of cash and the word "minted":

The market begins to rise confidently literally the next day after the issuance is printed. It is worth reacting to the issuance of lots worth $1 billion USDT in a day. Anything below this threshold may fail to trigger growth in the cryptocurrency market. Sometimes, especially during a decline in digital asset prices, the issuance causes growth for one or two days. A trader should protect their paper profit with a stop loss if Tether's efforts are not enough to create a full-fledged trend.

 Grayscale is the largest investment fund that for 7 years has been issuing shares of trusts backed by real cryptocurrency. The company licensed 14 crypto trusts in the USA, which are available only to professional investors ready to invest at least $25 thousand for six months or a year without the right to withdraw funds.

An alternative option for retail investors is buying shares of these trusts on the over-the-counter OTC market, issued for the amount of cryptocurrency bought with investments from institutional clients. Grayscale received three licenses from the USA Securities Commission to issue shares of three trusts: Bitcoin, Ethereum and Litecoin.

The company runs a fully transparent business, publishing reports daily on Twitter while skipping only the days when there is no inflow or outflow of funds in the fund assets.

You can track the actions of crypto whales by the last column of daily changes. If they are above 5% for BTC and 10% for the other cryptocurrencies, a trader should think about opening a long. As in the case of Tether analysis, such a position needs subsequent protection of paper profit with a stop loss placed in the break-even zone.

Despite the obvious relationship between an increase in deposits by crypto whales and sell-offs directly affecting the rate of cryptocurrencies in general or of a particular asset, the analysis system does not look like a holy grail. The reason some forecasts fail is the long investment horizon of crypto whales and the need to enter the market and sell capital in parts so as not to collapse quotes.

Wallet analysis gives fairly general trend directions that are worth "repeating," expecting to make several trades rather than entering with the entire deposit. The described signals of Tether and Grayscale funds are more accurate in this respect, as you can verify yourself: statistics on them are available on social networks and on charts compiled by enthusiasts.

Usually they combine the charts of USDT and Bitcoin on the CoinMarketCap website. First, the Tether USD token card is selected,  which can be reached by clicking on the name of the cryptocurrency in the list on the title page.

The researcher is interested not in the rate, but in the market capitalization (issuance) of USDT. This data can be displayed on the chart by selecting the MarketCap option at the top left above its field. There you should also decide on the standard history interval, for example, by taking the last 7 days. The same timeframe must be selected on the Bitcoin chart card as well.

Next we take screenshots and combine both charts. Below is shown a strong weekly drop in BTC that stopped a day after a sharp release onto the market of more than $1 billion USDT printed in a single day.

A chart of changes in the capitalization of the Grayscale fund and the related behavior of the Bitcoin rate can be found by this link on the Chinese cryptocurrency exchange Bybt. Pay attention to how institutional investors abruptly stopped buying Bitcoin at the beginning of this year and what happened to the rate after the freeze in increases in the volume of their investments for the longest period in history.

None of the above signals is suitable for shorting. Cryptocurrency has the feature of high inertia in an uptrend, and crypto whales, like institutional investors, only close part of their positions, often making mistakes in determining the top of the market.

Cryptocurrency is a tool for long-term holding that involves constant additional investments and partial profit-taking at moments of a predicted market decline. Short-side speculation makes no sense given the high risk of loss and the much greater prospects of working from the long side.

The considered topic of researching cryptocurrency wallets shows significant differences between analyzing a new class of currencies and traditional approaches of technical analysis in Forex. The transparency and openness of the blockchain allows a trader to obtain comprehensive information on any type of capital movement in the world of digital assets.

It is worth noting that this data is much more effective than technical indicators, whose signals lag behind or are partly false. Wallet analysis is only one example of an approach to forecasting cryptocurrency trends, which are influenced by the level of decentralization, the activity of code developers, technological features, and so on.

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Respectfully, Ivan Petrov
Tlap.io