What are crypto whales, and how do you track them?

[TL;DR]

In early May this year, a popular algorithmic stablecoin, UST, pegged to the US dollar, crashed to almost nothing causing a ripple effect throughout the whole crypto economy. There were many reasons attributed to this event, including inherent flaws in the stablecoin's make-up. However, the most prominent and immediate contribution to this crash was traced back to whales dumping on the ecosystem.

Recent findings by Nansen, a crypto analytics firm, reveal this information as it identifies a few whale account transactions that were responsible for the crash that cost investors close to $40 billion.

Crypto Whales are defined as wallets with large crypto holdings. The most popular categorization of a crypto whale is any account holding 1000 BTC or more. To illustrate, per BitInfoCharts, over 3% of all the bitcoins in circulation in May 2022 belong to only four wallets. Although this amount is higher among altcoins because they have smaller market caps, for instance, 59% of Dogecoins sit pretty in only 15 wallets, the logic is the same.

These investors, which are usually institutional, but sometimes individuals, usually cause market movements through their transactions. Whales can cause market prices to rise and fall by buying or selling significant amounts of coins, as the case may be. Some of them use their positions to manipulate the market to their advantage, most times at smaller investors' expense. Therefore, it is crucial for retail investors or those with small holdings to monitor these large wallet transactions to predict and use these activities to their advantage instead of being swept away in the whales’ backwash.

Shrewd investors take advantage of tracking tools such as on-chain explorers, paid analytics platforms, and social media platforms that monitor whale transactions to make on-chain analyses and inform their investment decisions positively.

In this article, you will find more in-depth information on what whales are, whale behavioral patterns, their meanings, and how to take advantage of them. You will also learn more about the tools you can use to track whale transactions.

Keywords: Whales, bitcoin Whales, Crypto Whales, Terra, Tacking whales, Panic sell, market crash, Nansen, blockchain explorers, whale transactions, whale wallets, crypto wallets.


What Are Crypto Whales And The Dangers Associated With Them?

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Similar to the mammals they are named after, crypto whales are simply large investors in the cryptocurrency market. In other words, wallets with large holdings in a particular cryptocurrency. For example, BTC whales are popularly categorized as wallets holding over 1000 BTC due to bitcoin’s larger market cap. Obviously, this amount is significantly higher for altcoins since they have a much smaller market cap. For example, more than 3% of Bitcoins market supply belongs to just four wallets, while almost 52 percent of Dogecoins belong to 15 wallets as of May 2022, according to BitInfoChart data.

The simple logic behind whales is that because their holdings comprise a large percentage of whatever crypto they hold when these wallets make large transactions, it ultimately affects the entire ecosystem in which they hold assets.

Occasionally, Whales use this power to manipulate market trends to their advantage. This is dangerous, especially to small-time investors, because multiple whale movements can lead to a crash, just like in the case of Terra’s stablecoin.

Alternatively, whale activity, otherwise called institutional movement, can also be a good thing for smart money investors who can track Whale investors' transaction trends and surf them properly.


How do Whales' Behaviors Affect market price?

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Although whales do not always deliberately set out to manipulate market prices, the impact of their transactions is usually felt by the crypto they hold. This has made them the subject of constant scrutiny and, by extension, a thermostat of the online economy they find themselves in. Let's zoom in on how this works. Typically, Whales can cause Market prices to rise in three ways:

1. Large Purchases: When specific wallets start buying particular crypto in large amounts, it causes the coin to rise and encourages smaller investors to follow suit. This, in turn, causes the price of the crypto to keep rising until it finally plateaus out as fewer investors join the train at the tail end. At this point, Whales begin to reduce their holdings while unsuspecting small-scale investors continue to invest. Smart investors monitoring these institutional movements can easily detect the trend, pull out before the panic-selling begins, and re-enter the market once it has crashed.

2. Large Sales: Massive sell-offs by crypto whales will negatively impact any crypto's market cap. Any time this happens, the panic-selling is rarely far off as smaller investors scramble to keep up in the hopes that the whale has insider info that others are not privy to. However, not all large sales are whale dumping; some just change wallets, while others likely made a big purchase. Nonetheless, these movements impact the market.






Terra’s Crash.

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Many investors have long suspected that the crash of Terra’s algorithmic stablecoin, UST, may have been due to a whale dumping their assets, which triggered a massive sell-off after the stablecoin lost its 1:1 peg to the dollar, dropping to $0.10. However, Nansen analytics have confirmed that not one but a few Whales caused the Waterloo of the ecosystem. An event that affected UST’s sister coin, Luna, also dropped by 99% in the ensuing panic.

In an article by the crypto analytics firm, an on-chain transaction investigation revealed that a few whales had dumped their UST holdings after possibly discovering some flaw in the system that made it unable to maintain its dollar peg. The massive sell-out began, and the rest, as they say, is history.

3. Unfilled Buy/Sell Orders: Knowing that they are under scrutiny, some whales put up orders either buy or sell that they know they won’t fill. These orders will, of course, show up in the order books and possibly move the market.


How to Monitor Whale Accounts?

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The following steps can be used to track Whale accounts:

- Identify Whale Accounts relevant to you: As earlier mentioned, for BTC wallets, these would typically mean wallets holding more than 1000 BTC and more for altcoins.

- Track On-chain activity on these accounts: There are a few tools you can use to do this. More on these tools will be discussed later. However, for now, let's examine the kind of transactions to look out for in your tracking.

1. Exchange Inflows: This simply refers to transactions from wallets to exchanges. When whales deposit stablecoins on an exchange, that is an indication that they are likely to on-ramp positions. On the other hand, if the deposit consists of coins, it indicates that they are about to sell.

2. Exchange to Wallet transactions: When a Whale investor moves their coins from an exchange to a cold wallet, it is usually because they intend to hodl. The scarcity such movements create sometimes results in price appreciation, and other times might mean the investor suspects that market conditions are unfriendly at that time.

3. Large OTC transactions: these are wallet-to-wallet transactions not done on exchanges for liquidity and privacy reasons.


Crypto Whales Tracking Tools.

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In tracking institutional movements, some tools that are invaluable include:

1. Blockchain explorers: These are protocols that carry all blockchain data and display them in formats that are easily navigable to users. Anybody can look up information such as wallet transactions, history, and addresses on these protocols. They typically display wallets in order of size of holdings, so you can easily distinguish the whales. You can also permit notifications when selected wallets make a transaction. Examples of block explorers are; Blockchair, Tokenview, Etherscan, bitinfocharts, etc.


2. Crypto Analytic Protocols: These platforms offer more intensive info and filtering options to users for a fee. Examples are Glassnodes and CryptoQuants.

3. Social Media: Some social media pages like WhaleAlert on Twitter are dedicated to sending out notifications when identified whales make large transactions on-chain.
Conclusion.

While it is good to track whales to avoid falling victims to their movements in the crypto market, one must also conduct ample personal research to make better-informed investment choices.

Crypto Whales hold huge amounts of crypto and can move the prices of the currency they hold to appreciate or crash depending on the type of transactions they make. Understanding how to track their activity is an invaluable skill for smaller investors who intend to stay afloat in the world of cryptocurrency.


Author: Gate.io Observer: M. Olatunji
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* This article represents only the views of the observers and does not constitute any investment suggestions.
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