How to track whale movement through on-chain analysis?
When it comes to cryptocurrency trading, users can utilize technical indicators and price patterns to maximize their returns. Support and resistance, bull flags, Bollinger bands, and moving averages are common cryptocurrency trading tools.
The problem is that when everyone is using the same indicators, institutional investors tend to anticipate what everyone else is likely to do and take profits early. This means that users must go beyond basic technical analysis if they really want to gain an edge over institutions in the crypto markets.
One of the easiest ways to do this is to use on-chain analytics, and one of the most powerful on-chain signals is whale movement.
On-chain cryptocurrency analysis
On-chain cryptocurrency analysis
To understand whale movement, everyone needs to be familiar with on-chain analysis. Here is a crash course.
As we know, most cryptocurrency blockchains are publicly visible. This means that most crypto transactions are visible to anyone in real time, which can be easily done using a blockchain explorer.
The coolest thing is that this level of transparency allows everyone to do more than verify that our transactions go through.
Most blockchain explorers can rank wallet addresses based on the amount of cryptocurrency or tokens they hold. Some people like etherscan.io do this by default. However, if we use Binance Smart Chain or any other project like Cosmos, Avalanche, we need to use their tracker.
BSC scan page
This is very useful because it can tell us if the supply of a cryptocurrency or token is evenly distributed among holders, or if only a few wallets hold the majority of the supply.
If the supply of a cryptocurrency or token is heavily concentrated in a few wallets, there is a significant risk that one of those wallet holders might start selling, which would cause the price of the cryptocurrency or token to plummet .
Blockchain explorers can even help us understand what people are doing with their cryptocurrencies. Most blockchain explorers will label wallets belonging to both centralized and decentralized exchanges. This lets us know if people are trading or holding these cryptocurrencies or tokens.
If there is a large supply of cryptocurrencies on an exchange, it is likely that those who hold cryptocurrencies do not intend to hold them for the long term.
If we see that most of the cryptocurrency supply is being exchanged frequently, it indicates that those who hold that cryptocurrency are not planning to sell it anytime soon. Now, some smart cryptocurrency traders are even starting to track the cryptocurrency wallets of wealthy individuals and institutions.
This makes it possible to simulate the buying and selling behavior of smart coins, sometimes even discovering and buying hot 100x altcoins before the news is released.
These finer-grained on-chain policies are much harder to do manually. This is why companies like Glassnode and CryptoQuant exist.
On-chain analytics platforms combine prices with on-chain data to create new indicators that often tell us more about the cryptocurrency market than technical analysis indicators and price patterns.
For example, Glassnode’s open interest volatility indicator shows how the Bitcoin supply has changed over a given period of time. When these dark waves start to peak, it means people are selling. As we can see, the tops of these peaks line up fairly well with previous bull market tops.
The only problem is that these advanced on-chain metrics can cost thousands of dollars to use. Some of them even cost tens of thousands of dollars per year.
secondary title
Whale Sports 101
In a word, whale movement is one big cryptocurrency deal. It's a simple signal, and the direction of a trade can have a huge impact on the price of a cryptocurrency.
When we see cryptocurrency being sent from a normal wallet to an exchange wallet on a blockchain explorer, it means that the person who sent the cryptocurrency may want to sell it.
When the deal size is small, this isn't a big deal. However, if we see hundreds of millions of dollars in cryptocurrency being sent from wallets to exchanges, this selling pressure could cause prices to crash.
Conversely, if we see hundreds of millions of dollars in cryptocurrency being sent from an exchange to a wallet, the people behind the wallet are not planning to sell anytime soon.
If enough whales leave exchanges and enter wallets to purchase a particular cryptocurrency, this sudden reduction in market supply can be rocket fuel for aggressive price action.
The effects of these two whale movements are opposite when it comes to stablecoins. If hundreds of millions of USDT or USDC are moving from wallets to exchanges, it means whales are looking to buy, which could mean the market is about to rise.
If hundreds of millions of stablecoins exit exchanges, it means that whales are not planning to invest any time soon, which could mean a temporary downturn or even a full-blown bear market.
If we want to know what these whales are trading for. The answer is arbitrage.
In other words, whales exploit the price difference between the two exchanges. And because they have so much capital, small differences can pay off handsomely in dollar terms.
The final type of whale movement is wallet-to-wallet transactions. These are probably the most misunderstood. Believe it or not, most large investors do not use cryptocurrency exchanges. This is because the large volumes of cryptocurrencies they wish to buy and sell could roil the market in the way I just mentioned.
Instead, they trade off-exchange. OTC, which allows large investors to buy or sell large amounts of cryptocurrencies at a fixed price directly from an exchange or cryptocurrency custodian.
When we see hundreds of millions of dollars in cryptocurrency circulating between wallets, it could be some kind of OTC transaction.
The problem is, we can never be sure if it's a buy or a sale until it actually happens. Now, here's why Tesla's purchase of bitcoins didn't affect bitcoin's price until they were publicly announced.
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What is Whale Sports?
Now, in theory, the trading dynamics just mentioned are all we need to know about whale movements, and some of us may already be familiar with everything that was said before.
The problem is that there are factors that can turn a whale's movement into a misleading signal, and these are often overlooked by the average crypto trader.
The first factor has to do with definition. How big does a cryptocurrency transaction have to be to be classified as a whale movement? The answer depends on the tracking tool used. For example, Whale Alert appears to report every transaction over $1 million on 13 blockchains in its Twitter feed.
Such arbitrary thresholds can be a huge problem when measuring the impact of whale movements on cryptocurrency prices. This is because of market depth.
Market depth tells us how much money is needed to drive cryptocurrency prices up or down on any given cryptocurrency exchange. This can be easily checked on Coingecko or Coin Market Cap. The more money it takes to push prices up or down 2%, the greater the market depth for cryptocurrencies.
That's why it's relevant? If we see $10 million worth of bitcoins moving from a wallet to an exchange with a market depth of $20 or $30 million, even if all the bitcoins were sold immediately, it would have negligible impact on the price.
What’s more, sometimes the movement of altcoin whales in dollar terms is so small that it can’t even be picked up by whale tracking tools. Even so, it was still enough to send prices plummeting.
What’s more, sometimes the movement of altcoin whales in dollar terms is so small that it can’t even be picked up by whale tracking tools. Even so, it was still enough to send prices plummeting.
Going Beyond Basic Whale Movement
Going Beyond Basic Whale Movement
This brings me to the second often forgotten element of whale movement, which is that not all whale movements are created equal.
Because most altcoins are closely related to Bitcoin. Bitcoin whale movement can crush our favorite alt even without significant whale activity.
Additionally, certain whale trades will become more important than others as the bull market nears its peak.
On any given day, we can see significant whale movement in cryptocurrencies like Bitcoin and Ethereum. Some of them are large and they have a predictable impact on price.
It's not every day that we see an old bitcoin wallet making a transaction for the first time in a long time.
Transactions from these dormant bitcoin wallets could seriously shake the market, as they show that prices have risen enough that even the most ardent holders want to sell.
Often, the activity of these ancient whales makes crypto news and is sometimes noticed by whale trackers. Fortunately, most of these transactions have been small wallet-to-wallet transactions in recent months. However, if we start to approach the 100k or 200k mark and we start to see some older wallets start moving their bitcoins to exchanges, that could mean we are at or near a price top for this cycle.
It is also important to remember that the significance of a whale transaction depends on the token economics of the cryptocurrency and which whale wallet the transaction comes from.
There is a difference between the largest Dogecoin holder throwing 10 million DOGE and the smaller Dogecoin wallets doing the same.
If large transactions from wallets to exchanges come from the largest holders of cryptocurrencies that are unfairly distributed, it may be time to abandon the ship.
The same rule applies to transactions made from the cryptocurrency wallets of prominent crypto billionaires like Vitalik Buterin. Vitalik is known for selling large amounts of Ethereum at the peak of the last bull market.
Unlike most crypto billionaires, Vitalik made his wallet address public. Unfortunately, the transactions he made were apparently not tracked by free whale tracking tools.
This means that if we want to get a cell phone signal from V-God with ETH, we have to keep an eye on his wallet address. Vitalik's wallet address can be seen here and the Etherscan link is below.
Vitalik's ETH wallet address:
https://etherscan.io/address/0x220866b1a2219f40e72f5c628b65d54268ca3a9d
Now, at this point, we should take the time to identify wallets belonging to any significant individual or team working on our favorite cryptocurrency project. When we see them start moving large amounts of cryptocurrencies or tokens to exchanges to sell, we might want to think about doing the same.
It should be noted here that sometimes it is difficult to tell whether the cryptocurrency they are transferring is actually going to the exchange, and some project founders even deliberately cover up their sale.
Whale Movement Trading Psychology
Whale Movement Trading Psychology
A third factor that is overlooked when analyzing whale movements is that smart investors know how the average retail trader is likely to react to certain whale movements.
The most prominent example is whenever a large number of stablecoins are minted. Logically, the new supply of USDT means that Bitcoin will go up, right? Well, not quite.
Stablecoins are minted and burned according to market demand.
Now, this is necessary because if there is too much or too little USDT compared to demand, this can push the price of USDT up or down from its peg to the USD.
The main takeaway here is that the minting of USDT or USDC does not automatically mean that the price will increase. It just means that the demand for these stablecoins has increased.
After all, if a big investor is buying bitcoin, they probably aren't minting a bunch of stablecoins to do it. They will only use OTC counters.
Regardless, these facts fall on deaf ears to the average whale watcher, who wrongly assumes that stablecoin minting means we are about to see a huge pump.
This leaves them vulnerable to manipulation by large investors who may push the price up by a few percent after the stablecoin is minted to give the illusion that it is happening.
Retail investors put their money into the pump and get dumped by the smart money. The same thing happens with whale sports.
in conclusion
in conclusion
On-chain analysis is something I've been exploring to the fullest. As someone who has tried both paid and unpaid on-chain indicators and signals. I can tell you that you can get a great result without spending a penny.
However, the indicator is only as good as the trader using it, and the average crypto trader doesn't seem to understand whale movements or how to use them.
However, the indicator is only as good as the trader using it, and the average crypto trader doesn't seem to understand whale movements or how to use them.
I think this has to do with the fact that there is no uniform definition of whale movement in cryptocurrency. In my opinion, a whale movement is any transaction that is big enough to disrupt the price of a cryptocurrency, everything else is just noise.
Because of this definition, it's easy to forget that whale movement and whales can be mutually exclusive. This may sound odd, but it helps underscore the importance of knowing which wallet a whale's transactions are coming from.
I remember checking Vitalik’s wallet address shortly after the mid-May crash and seeing that almost all of his ETH was gone. It's kind of scary, but it turns out he just moved most of his ETH to a cold wallet.
Now, sometimes I wonder if these crypto billionaires ever play the “chicken game” with regular crypto investors, moving huge amounts of cryptocurrency to exchanges without buying or selling. They might even do so in conjunction with specific news or events because they know it will arouse strong emotions among ordinary retail investors.
If analyzing Wyckoff's approach has taught me anything, it's that we're better off assuming that smart investors are always looking for opportunities to mess with our heads. Remembering this can go a long way, but make no mistake. If we see dozens of whale transactions entering cryptocurrency exchanges at the same time, this time it may be true.
