The importance of tracking crypto whales and the tools you can use to track their holdings
Of CNBCTV18.com IST (published)
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While crypto volatility is usually a product of market sentiment, it can also be affected by large investors making massive transactions. Such accounts are known as whales and their transactions are known as whale movements. Good traders are always on the lookout for whale movements, hoping to take advantage of the price swings they cause.
Cryptocurrencies are cyclical and highly volatile as well. For risk-averse investors, this is a big red flag. However, for crypto traders who can time the market, it is an easy way to make big money.
While crypto volatility is usually a product of market sentiment, it can also be affected by large investors making massive transactions. Such accounts are known as whales and their transactions are known as whale movements. Good traders are always on the lookout for whale movements, hoping to take advantage of the price swings they cause.
How do whale movements affect the markets?
If whales buy large amounts of a particular crypto, the price is sure to increase. On the other hand, if a big investor starts dumping a token en masse, it will cause a drop in prices.
The economics are very simple, when a whale buys in bulk, it creates scarcity, triggering a price rise. But when such an investor dumps tokens into the market, the supply increases dramatically, causing prices to fall.
Also, several traders and investors tend to copy whale movements, because when they buy/sell, the rest of the market usually follows.
What is an indicator that a whale is selling?
A sign of whaling is when you see a wallet transfer large chunks of crypto to exchange wallets. This means they are going to sell the crypto leading to a price drop. This is your chance to get ahead and withdraw money before autumn.
What is an indicator of whale buying?
Whales usually prefer cold wallets for long-term crypto storage. These are not connected to the internet, which makes them less vulnerable to hacks and attacks. Therefore, if you see some large withdrawals out of an exchange wallet and into a whale wallet, that is a good indicator that the entity intends to hold those coins.
This outflow from crypto exchanges results in a lack of supply, driving prices up. For example, back in 2019, the price of Bitcoin jumped from around $4,200 in April to around $11,500 in late June. The surge seemed like a natural outburst, but it was later discovered that a 20,000 BTC purchase made on three different exchanges led to the peak.
What is over the counter trading?
When whales do not want to disrupt the markets with their movement, they tend to opt for over the counter or OTC trades. This means that the transfer of crypto is from one wallet to another wallet (secretly owned by an exchange or another buyer) for a predetermined fixed price.
These OTC trades often go under the radar and only have an effect on the markets when the news breaks. A good example of this is when Tesla bought bitcoin for 1.5 billion dollars without affecting the market before the news broke.
The Whale Tracking Tools
Now that we know some of the basics of whale tracking, let’s dive into some of the tools you can use to track whales. The tracking is made possible by the transparent nature of cryptocurrencies where anonymity is possible but secrets are not.
1. Blockchain Explorers
The transparency of cryptocurrencies can be unlocked with blockchain explorers. They act as crypto search engines where you can search for a wallet and find out what it contains and all the transactions. You won’t know the name unless it’s a popular exposed wallet.
Some blockchain explorers allow you to sort transactions by amount. This can help you narrow down the whales and get an insight into what they are up to. Blockchain explorers are updated very close to real time.
While their actual use was to check if your transactions were success/fail, they have now also changed into whale tracking platforms.
2. Whale alert
Whale Alert is what you call community help. There is a Twitter account as well as a Telegram channel that provides real-time alerts on whale movements. These alerts are your way of making quick moves based on the data.
Whale Alert qualifies any transaction over one million dollars as a whale movement which may not necessarily qualify as one of the major cryptocurrencies.
3. Paid on-chain data analytics platforms
There are many up-and-coming platforms like CoinCarp and Etherscan.io that distill the information from blockchain explorers to and provide it to you in a palatable format.
On these platforms, you can set your own parameters for the information distillation, and you will be notified when such events occur. Since these are specialized programs, you may have to pay a subscription fee to use the service.
Conclusion
When you are a crypto trader, you have many tools and indicators at your side to help you trade better. The problem is that these indicators are also available to everyone else, and that dilutes your advantage significantly. With whale tracking, you put yourself in a position to accurately predict market movements and profit from them.
We hope the tools above can help you get started with whale tracking. Be careful if you base your entire strategy on whale movements, as some whales tend to exploit their power over the markets.
