Beware: whales in the crypto market can destroy you.
As mainly a TA guy who believes that most overall market sentiment is visible in the charts, such events are real body blows. They negate all TA assumptions and leave you nervously reaching for the next packet of cigarettes, scrunching up all your chart work, tossing it in the waste paper basket and nervously starting from scratch again, re-analysing everything.
In a way it make you a better trader, but it also keeps you in such a anxious state that, anyone with a weak constitution will surely suffer a breakdown sooner or later.
So I'd like to share some theories with you.
Whales - and their origins
I believe there are mainly 2 types of whales out there. There are the computer geeks that mined bitcoin, 50 at a time when there were no more then some dozens of computers running the network. With such low mining difficulty in the network, leaving your laptop running was enough to snag at least 50btc every other day. Some individuals amassed large holdings like this. I think there were also many coins burned by these people. In experiments with wallets, and transactions, and by simple negligence with private key security. They simply did not imagine bitcoins could become as valuable as they are now.
The second type come later. Once bitcoins had a tradable value and the markets began to fill up with hopeful traders. These are the Wall Street (I use this term euphemistically since it is anyone from the finance world) wolves.
They use virtually free money (access to large funds at 0% interest) and build take large enough positions in bitcoin (and/or other cryptos) to be able to swing the market. The advent of futures and derivative markets like Bitmex have given them a nice playground where they can lure hapless new day traders to their slaughterhouse.
I think there could be a sub variant of this second type which I will elaborate on later.
Greedy Whales
The Wall Street Wolves (WSW) are quite comfortable with staking and playing with huge sums of money. We need to remember, the money is not theirs. They got it virtually for free.
They love markets. This is where they can play with each other with their huge sums of money. This is where they can devour the little fish (us) as well.
Dumping a few 100's of btc market sell order on the books during a quite trading moment can easily will clear out buy orders that would represent a significant percentage drop in price. This could be replicated on another exchange, and suddenly the little fish are running for the exits. A 1000 bitcoin could easily follow this selling flow.
Why would they do this you may wonder? Well if you were the one to push down with the initial sell order, then you have a unique moment of information asymmetry. You know what the catalyst was. It was you!
If we get a 3% or even a 5% drop. Then the WSW will start to buy back at the lower level, gently not to shock the market in the other direction too much, and load their weapons for the next assault. Each time they gain a few % on their positions. Easy money!
Off course this is the vanilla version. There are more exotic variants.
Simplest is timing, the WSW would time these operations for maximum effect. Low volume moments in the market would magnify the effect of these actions.
Or, imagine the WSW placing short trades on the futures markets and then crashing the price. You profit in 2 places.
Maybe the WSW can team up with other WSW, like pack hunting to cause even more havoc!
Legal or illegal does not matter to the WSW. They are above the law. The lure of profit is way to powerful to hold them back.
Accidental Whales
Those geeks that I describe as the first whales, they also what to have fun. They are not traders, they do not do TA on charts, they are not trading satoshi's back and forth trying to ride the next moonshot and retire. Bitcoin could crash to 1000usd and they are still wealthy.
When they get the feeling that they would like a Lambo (not that Lambos excite these guys but they may have other expensive desires, so let's use the euphemistic Lambo as the label here), they will just dump the btc they need for their Lambo. This could be enough to start a stampede that on the charts will look very much like a WSW.
I think this is more the exception than the rule when it comes to these whale moves in the market, but nonetheless these geeks are market participants and thus represent part of the character of the market we are playing in.
Sinister Whales
As with Godzilla the Global Banking Elite (GBE) ostensibly wants to save humanity, but in the process destroy huge swathes of it. But primarily, the GBE, like all of us, want to save themselves. Want to save the elaborate structures of finance around the world that they have tirelessly built over the generations.
Deconstruction is the most difficult thing for any group to do. It is a moment when all existing hierarchies are overturned and a scramble for a new position in the power vacuum ensues.
A group with a stable hierarchical power structure will go to huge lengths to preserve it.
Our existing GBE have the ultimate power in our globalised, financialised world. They can create money out of thin air! This is not a tactic they reserve for the most dire and desperate situations. A tool to be wielded only when all others have failed. No, they are quite adept at this. They have been doing this with reckless abandon for the last decade and more.
This chart is a GBE proxy for money creation. (The systems they have in place mean the money has to show up somewhere in their screwed up accounting system, and this is where it is. If this peaks your interest, then read up about what fractional reserve banking is)
Is it conceivable that the GBE see the potential for their demise in cryptocurrencies? Most definitely.
Without running around with their hair on fire and screaming like banshees, they have strongly signaled their fear and loathing for cryptocurrencies over and over again in the press. Albeit in their own special brand of doublespeak.
So a mirror of WSW operations could be easily executed by GBE actors as well. Or WSW operations maybe greenlighted by the GBE. Or some subtitle subplot revolving around the same theme.
To what ends? I see 2
Destroy faith in crypto
I believe there are some demented sociopathic members of the GBE that want to see crypto gone. This is pure hubris but does not diminish their will and ability to try. Dumping the market with sell orders when the market is fragile is definitely a way to damage the reputation of cryptos.
Considering that the GBE also have a large influence on what the MainStream Media (MSM) feeds the general population of the world, an operation to destroy the faith in cryptos, and thus cryptos themselves is quite possible.
I am almost certain they will fail that this, but they may buy themselves a significant amount of time.
Coopt
Take position in BTC in order to coopt it for the future. In which case they want to secretly nurture it without it getting too out of their control.
The surest way for the GBE to have a strong position in a new financial hierarchy built on cryptos, and I am not talking about some clumsy central bank crypto like the Venezuelan Petro, I am talking Bitcoin itself, is to own a shitload of them.
New Whales
A new category of whales is making an appearance. The hedge fund whales.
I don't have a image for them because I am still unsure of how they will affect the market in the long term.
Hedge funds are not constrained by as many rules as mutual funds and the other structured financial instruments that exist today. They mainly represent High Net Worth Individuals. (HiNWI).
The HiNWI want in. They smell the change in the air. They sense that a paradigm shift is due. They want to hedge their bets on order to maximise their chances of not falling too far down the societal ladder when the shift occurs.
Hedge funds are obliging them by creating funds based on cryptos. So by default, these hedge funds become whales.
They will move abnormally large sums of coins back and forth with the narrow goal of maximising returns for their HiNWI clients.
There are other effects they can have on open public blockchains, especially POS (proof of stake) coins.
I will not go into this though because it would make this post crazy huge.
So in summary, It should be realised why TA works and understand its limitations.
TA relies on 2 aspects:
- Market paticipants are relatively homogenous in their goals and means. i.e if everyone in the market is in it for roughly the same reason and there is no large disparities in individual holdings, or no whales
- Information about market conditions is known by all participants at the same time. This obviously not possible, but the more the disparity of this, the less effective TA becomes
When a whale splashes, we get sharp movements in price. A whale can be seen as a huge school of minnows that change direction at the same time. If a large group of little fish all put in market buy orders at the same time, we would create the same effect as a whale. But for obvious reasons, we cannot do this.
So guys, being aware is an informational advantage in the market. Use it wisely.
And for a final warning about TA:
It is easy to overdo it! Like reading tea leaves, you can read anything you like into a chart. The hardest part of trading and TA is to be self critical and accept what the analysis says rather than make it say what you want.
Here is a case in point...
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And as always trade safe and have fun.