In the challenging and opportunity-filled world of crypto, choosing the right investment can often be more crucial than just working hard. Smart money has always been a key focus for crypto investors. By tracking and utilizing smart money, investors can improve their decision-making and enhance their chances of profitable outcomes. So, how can an average investor identify and track smart money?

What is Smart Money?

“Smart Money” refers to capital controlled by well-informed, experienced investors who possess access to better data and stronger analytical skills in the financial markets. These investors typically excel at making accurate market calls, seizing opportunities at the right time, and avoiding risks, which results in higher success rates and greater investment returns.

Key players behind smart money include top traders, influential figures (KOLs), major investors, whales, and institutional investors.

Why Should You Track Smart Money?

Following smart money can be a highly effective strategy for those looking to maximize returns and minimize risks in the crypto market.

Uncover investment opportunities early

In the crypto market, information asymmetry can create significant wealth. Smart money tends to have access to better and more timely information on projects. These investors often gain critical market insights and breaking news before regular investors, allowing them to spot potential opportunities earlier. By tracking smart money, regular investors can tap into this valuable information and get a head start.

Boost profit potential and mitigate risk

The trading behavior of smart money can influence the market, especially in early-stage or low-liquidity environments. Tracking these movements allows investors to ride the wave and capitalize on market shifts. For instance, when an influential KOL or major investor buys a particular asset, it often drives prices up in the short term, creating a potential profit window for others.

Likewise, if smart money is selling off a particular asset in large volumes, it might signal either profit-taking or an upcoming downturn. Following their lead in exiting can help mitigate risks.

Learn successful strategies and develop your investment approach

Although smart money doesn’t guarantee profits with every trade, it typically operates with well-developed strategies and methods. By observing smart money’s on-chain moves and investment choices, everyday investors can learn and refine their investment approach, whether it’s mastering risk management, staying composed during market volatility, or identifying assets with long-term growth potential.

How to Spot Smart Money?

Using Blockchain Analysis Tools

Thanks to blockchain technology’s transparency, we can trace every transaction. As crypto trading infrastructure improves, even average investors can use on-chain tools to find and follow smart money.

Platforms like Nansen, GMGN.AI, and DexScreener provide various tools and services. Users can view data from major blockchains and popular projects and closely follow smart money to receive real-time transaction updates.

For example, GMGN.AI offers a “Smart Money” section in the “Explore” tab, where users can view rankings of smart money addresses based on metrics like 1-day, 7-day, and 30-day profit and loss (PnL).

Source: GMGN.AI

When you click on a smart money address, you can view details like recent profits, win rates, current token holdings, and a series of transaction activities.

You can see details such as the buy time, total profits, current holdings, and average costs for each transaction.

Source: GMGN.AI

Apart from tracking smart money, investors need to evaluate the potential of projects. In the “Hot” section, projects are ranked based on factors like pool size, number of trades, and trading volume. Icons like green flames indicate high trading activity in the last hour, red warnings flag pools with liquidity under $4K, and gray megaphones indicate paid ads on DEXScreener. These details help investors assess the project’s viability.

Source: GMGN.AI

Since Meme projects often include scam or phishing addresses, it’s essential to verify the safety of a transaction contract before trading. GMGN.AI offers token safety checks, including details like whether the Mint permission has been revoked, blacklist settings, locked pools, the percentage of wash trading, and even the likelihood of a rug pull based on token-holding addresses. However, these checks are for reference only. Be sure to use multiple security detection tools to safeguard your capital.

When evaluating a specific project, check additional data like the holdings of the top 70 buyers or the activity of early purchasers (snipers).

Source: GMGN.AI

Once you’ve found smart money addresses, you can add them to your watchlist for long-term tracking. On GMGN.AI, users can follow smart money and receive notifications about their trading activities, including when they open or close positions. GMGN.AI also offers a TGBot to help you keep track.

Source: GMGN.AI TGBot

There are different bots to meet various needs, such as the Degen Hot Search Notification Bot or the Smart Money Tracking Bot. If you have programming skills, you can even use the Telegram API to feed token contract addresses to the bot, enabling automatic buying or setting limit orders for quick transactions.

Avoid Blindly Copying Smart Money

Now that you know how to track smart money, it’s important to remember that not all smart money is as reliable as it seems. Some smart money addresses get their large returns through airdropped tokens, not active purchases. This can be verified through on-chain data. Similarly, some addresses belong to project insiders who only buy but never sell or buy large amounts right after a project launches. These types of projects and addresses should raise red flags for investors.

Additionally, crypto’s extreme volatility means that market conditions are always changing. Smart money typically enters projects at very early stages, giving them a significant advantage with lower entry prices. If ordinary investors try to follow them later, they may face significantly higher prices and greater risks.

Assessing a Project’s Social Influence

A project’s popularity and community engagement are key indicators of its growth potential. By using tools like TweetScout, crypto investors can quickly assess a project’s influence, reputation, and activity level within the community, helping them stay on top of market trends and identify promising projects.

Source: TweetScout

Understanding the Different Trading Styles of Smart Money

Besides tracking Meme and trending projects, it’s also useful to consider the trading activities and portfolios of well-known KOLs, large holders, whales, and venture capital firms.

For insight-driven KOLs, investors can gain valuable market perspectives, but it’s important to remember that their opinions can be subjective, with personal biases or conflicts of interest. Use their insights as a reference, but always think critically and independently.

Similarly, for well-known venture capital firms and large addresses, we need to take a balanced approach. By tracking the investment activities of top firms like ConsenSys Ventures, Polychain Capital, Paradigm, Protocol Labs, a16z, or influential figures like Ethereum co-founder Vitalik Buterin and 100x Group & CIO Maelstrom co-founder Arthur Hayes, investors can analyze public data to identify potential trends and opportunities.

Source: Cryptorank.io

However, while institutions and whales can provide valuable insights, ordinary investors need to remain rational and avoid blindly following. These larger investors often can invest long-term, and their buy-sell decisions may not aim for short-term gains. So, it’s important to combine their information with your analysis and risk tolerance.

Smart money needs to be carefully selected, tracked over time, and studied thoroughly. Ordinary investors should use tools and strategies and adjust their trading approach based on different types of smart money. For example, Meme project smart money tends to be fast-paced and is better suited to those with a high-risk tolerance. On the other hand, institutional and whale smart money often focus on long-term stability, making it better for those who prefer longer-term investments and are comfortable with short-term fluctuations.

Ordinary crypto investors can improve their chances of profiting by following smart money’s trades, even replicating them entirely. But there’s no such thing as a guaranteed win in the market, and blindly following smart money can be risky. Investors should find a trading style that suits them, learn from smart money’s methods, and gradually build and refine their trading systems.

Conclusion

Spotting smart money is a continuous process that requires patience, sharp observation, and a strong sense of market dynamics from everyday investors. As a tool to help us identify crypto Alpha more quickly, smart money can help investors work more efficiently and gain access to the latest and most valuable insights. However, it’s important to understand that due to the rapid shifts in the crypto market, smart money and regular investors often operate under different conditions, so blindly following them isn’t a wise approach.

What’s more, by analyzing smart money, investors should focus on learning key skills like risk management, improving their investment techniques, and refining their trading strategies with ongoing feedback from the market. This way, they can build their investment system and logic over time.