As a newbie to the crypto terrain, one of your first steps is understanding who a crypto whale is. The actions of crypto whales usually cause huge volatility in the market regardless of whether they were intentional.
During bullish or bearish periods, you can have an undue advantage in the financial market (crypto market inclusive) by being updated with whales’ activities. It is proven that some whales use their influence to tilt the market in their favor.
Nevertheless, some whales suffer from market swings if they handle their crypto liquidity poorly. FTX founder Sam Bankman-Fried’s fall exemplifies this fact.
Hence, the real question is, “How do crypto whales influence the prices of cryptocurrencies?” More importantly, what steps should you take to avoid losing your assets due to the actions of crypto whales?
Who Is A Crypto Whale?
A crypto whale is a wallet address with huge volumes of a specific digital asset. The word ‘huge’ is relative and depends on the crypto asset.
For instance, someone with 1,000 BTC can be considered a BTC whale. In contrast, someone with the same amount of SHIB (for instance) can’t be considered a SHIB whale.
For perspective, let’s consider the doge crypto asset. The largest DOGE whale (whom many assume is Elon Musk) controls 24% of the crypto’s total supply.
Hence, if they chose to sell some or all their doge coins, it would hurt the DOGE price.
Whales And Their Influence On The Crypto Market
There are three top ways crypto whales influence the price of crypto assets.
Large Sell/Buy Orders
A whale can set up a large sell order to frustrate the bulls’ efforts. This action is termed a cell wall.
Suppose your technical analysis shows that ETH’s price should rise soon. However, when you check the order book on your favorite decentralized crypto exchange, you see a $10 million worth of sell order.
This indicates that there won’t be any significant change in ETH’s price until bulls purchase $10m worth of it. When this happens, some bulls will even cancel their buy orders, allowing a significant decline in the price of this asset.
Some NFT collectors also apply this method. Are you wondering why a whale would force down the price of a crypto asset when they own huge volumes of it?
The answer is that the move would enable them to buy more of such assets at bargain prices. The reverse principle is applicable during sale walls.
Triggering Liquidation Points
When traders get liquidated in a long or short position, they must perform the reverse trade to offset the liquidation. There are often sharp price changes when traders make a series of forced liquidations due to an overleveraged market.
When crypto whales initiate huge volume short or long positions unexpectedly, traders will have to close their trade positions forcefully if they are on the wrong side of such positions.
Having Multiple Wallets
While some whales have one crypto wallet for a specific digital asset, others prefer to split their digital assets into multiple wallets. The latter assume it would be easier to influence the market without being tracked by on-chain analytics tools.
However, the pattern of their actions on the market often exposes them as a whale in action. Even though there are several anonymous crypto whales, others are known to the public too.
These well-known crypto whales rarely participate in market manipulation. These notable crypto whales include MicroStrategy, Brian Armstrong, Tesla, and Ethereum CEO Vitalik Buterin.
Crypto Whale Watching And Its Importance
Knowing crypto whales’ moves might help make informed decisions when investing in the crypto market. For instance, if famous on-chain tracking tools such as whale alert reveal a whale is transferring a huge volume of a crypto asset to an exchange, it indicates the possibility of a large sell-off.
Conclusion
While tracking whales’ actions in the market is important, it is not necessary to always follow their steps. Sometimes, these whales purposely make these huge market moves to lead smaller investors astray.
The best option is to combine this information with other market analyses before deciding.
