“It’s a fun game. It’s a lucrative game. [… I would encourage anyone who’s in a hedge fund to do it because it’s a very quick way to make money […] I wouldn’t admit it on TV though. ”-Jim Cramer, hedge fund manager and host of CNBC’s Mad Money
Whales are investors who hold enormous quantities of a given coin and use their dominant position to manipulate its price.
Their objective is simple: to make big bucks and leave you rekt.
To do so, they use two tried and tested strategies: rinse and repeat and buy/sell walls.
1 – RINSE AND REPEAT
Whales love using a simple method called rinse and repeat which is very effective when timed correctly. They do this by placing a sell orders below the market price which leads to a wave of panic selling and a significant decrease in price. Once the dust settles, the whale will purchase large amounts of crypto at a discount, which will cause a new wave of buying as people see the price surging again. Once the price has reached a new top, they will start selling below the market price and repeat the process.
Jim Cramer, hedge fund manager and host of the popular CNBC show “Mad Money”, explains how this simple trick works:
“If I was short at my hedge fund and I was positioned short – meaning I needed it down – I would create a level of activity beforehand that could drive the futures. It doesn’t take much money. Or, if I were long and I wanted to make things a little bit rosy I would go in and take a bunch of stocks and make sure that they were higher. You know, maybe commit five million in capital to do it and it would affect it“.
What Cramer is saying is that he would drive the market price one way before dumping his position on unsuspecting investors who naively followed the trend. This is what whales are doing in the crypto markets.
2 – BUY AND SELL WALL
The second technique used by whales is the buy or sell wall. A “wall” represents a barricade on an exchange’s order book (the list of all active buy/sell orders that have been placed for a particular coin).
THE BUY WALL
A “buy wall” appears when an important volume of purchases occurs at the same price point, either by one or multiple investors.
A buy wall causes the price to climb as people believe there is a huge demand to buy and rush to buy the cheap orders. As the cheap orders are purchased, the buy orders gradually start reaching the increasing price point.
If one or more huge buy orders is having a hard time being absorbed by the market, those orders at an inferior price will not be absorbed either. Thus, the buy wall will act as a literal “wall” stopping the price from dropping for a given period of time.
The issue that people will buy crypto believing they will liquidate at the wall price but the whale will cancel that order at the last minute, leaving people holding large bags of crypto they bought at a very high price.
THE SELL WALL
The sell wall is the same thing as a buy wall except it’s for sell orders.
The whale will set a huge sell order to prevent higher sell orders from being executed. This maintains a low price and allows them to buy coins cheaply. When they have finished purchasing their coins, they cancel their orders, which effectively removes the wall, and the price will once again increase.
HERE’S A PRACTICAL EXAMPLE
A group of whales led by a man (let’s call him Jim C.) each want 10 million coins of a particular cryptocurrency. However, they mustn’t purchase that quantity in one go as that would lead to a rapid price increase and they would risk not being able to get in at their desired price. Thus, Jim C. proposes they set up a sell wall to purchase their coins on the cheap.
First, they decide to each purchase 1,000,000 coins, which affects the price only slightly.
Second, they all decide to sell their 1,000,000 coins at the same price to create a huge sell wall. The beauty of their tactic is that nobody will be able to sell lower until their order has been executed.
Third, Jim C. and his whale buddies watch as others panic to sell their coins at a lower price than theirs, allowing them to purchase their desired amount of coins at a discount. Once they have accumulated, they cancel their sell walls and watch the price increase.
Fun, easy AND profitable!
WHO ARE THE WHALES?
The Bitcoin rich list reveals that a great a portion of BTC is owned by very few people.
These whales could be the original group behind BTC’s inception, Wall Street investment funds expanding into new markets, high net-worth individuals dabbing in crypto or a mix of the three. Either way, they are taking advantage of their dominant market position and a lack of regulations to wreak havoc on the markets.
Our “friend” Jim Cramer is here to remind us that the stock market is also manipulated by hedge funds so we cannot reasonably expect regulation to eradicate the whales’ game altogether. The best solution is for every investor to perform due diligence and be aware of the risks.
HOW TO REACT IF YOU SPOT MANIPULATION
“Be fearful when others are greedy and greedy when others a fearful“-Warren Buffet
Investors should remain conscious of the games whales play. Large intra-day fluctuations in price that do not reflect a change in a project’s fundamentals should be treated as whale manipulation.
There should be no reason to panic if you’ve done your research and believe the project is solid. Take advantage of dips to purchase coins at a discount and only trade with what you can afford to lose. A sound investment strategy should be focused on diversifying your portfolio to hedge risks and maximize returns.
DO NOT YOLO.
DISCLAIMER: This is not financial advice. Conduct your own research before investing in any cryptocurrency asset. Be aware that crypto markets are very volatile and can lead you to lose part or all of your investment.
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