Can Bitcoin whale deposits to exchanges actually predict BTC price?
Traders are increasingly looking to blockchain data to predict short- and long-term bitcoin (BTC) price trends using platforms such as CryptoQuant, Glassnode and WhaleAlert.
Specifically, data points such as bitcoin exchange inflows, stablecoin outflows and stablecoin inflows are actively used by traders to predict where BTC might be headed.
Transfer of 499 #BTC (29,979,163 USD) from an unknown wallet to #Coinbasehttps://t.co/zkhywRQS82.
– Whale Alert (@whale_alert) March 14, 2021
Yet this data should be taken with a grain of salt, as even large shareholders are aware that this data is increasingly being used by many for their business strategies. Therefore, the rich or the whales can manipulate this data to tilt the market in their favor. But how?
Bitcoin blockchain data can be used for psychological operations
When a large amount of bitcoins is deposited on an exchange, it usually indicates that a whale or wealthy investor is planning to sell BTC, at least in theory.
Bitcoin Gemini Influx. Source: CryptoQuant
Investors with large amounts of bitcoins usually leave them in non-depository wallets or self-hosted wallets for privacy and security reasons.
Therefore, it looks like when these stocks go public, the whales will put tremendous pressure on the market.
However, since the whales know that investors can track deposits through these data platforms, this opens the door to a fraudulent situation.
In technical analysis, the term spoofing is used to refer to a situation where a trader takes a position anticipating a future trading signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.
For example, whales may deposit large amounts of BTC on various exchanges, creating the impression that they are selling a lot of BTC, which causes fear in the market and pushes BTC down.
In fact, the whales may not be selling BTC deposited on the exchanges at all. Instead, they can use this fake situation to, say B. Buy the good at a lower price.
Notorious pseudonymous trader Cantering Clark said:
To be fair, the current use of blockchain data and moving bitcoins from wallets to exchanges and back is a malicious scheme. Do you think a major player will so openly announce its intention to sell? I guess everyone is still falling into the quarter-turn trap?
CryptoQuant CEO Ki Young Ju raised a similar issue, which he calls on-chain psychological operations.
Ki noted that whales could deposit BTC on exchanges to shift market sentiment from greed to fear.
Negative market sentiment alone can be enough to trigger a price drop, which can also lead to a cascade sale if the futures market is crowded, Kee said:
This is a speculative gamble, but whales can bring a lot of BTC to the exchange to scare people, as many people follow whales’ warnings.
Gemini, for example, reportedly saw a large deposit of BTC before Bitcoin’s launch on the 15th. March plummeted to $54,500.
At the time, Kee pointed out that while these could be sell orders, they could also be psychological operations designed to make the market believe that selling pressure was imminent. He stated:
Maybe it’s one of them: 1. Psyops 2. Gemini operates a private brokerage service and executes sales orders on other exchanges. 3. Some brokers use Gemini Custody when executing sell orders on other exchanges.
According to Philip Swift, analyst and co-founder of Decentrader:
It can be dangerous for traders to place too much emphasis on the importance of transaction movements between wallets on a Bitcoin blockchain. As we have seen today, there is often confusion about who actually owns certain handbags.
Swift further explained that there seems to be an opportunity for pisos when the big players are misled by eager portfolio enthusiasts into believing that funds are moved before they are sold on the market.
About these money transfers, Swift said:
That’s not the point, the point is simply to make people believe that bitcoin is for sale. It is important to remember that the big players have many other ways to buy or sell $BTC, such as over-the-counter (OTC), futures positions, etc. They don’t always have to move their funds higher up the chain before buying or selling. They don’t always have to move their funds higher up the chain before buying or selling.
Fairly accurate, but no quick fix
Nevertheless, bitcoin deposits on exchanges have always been a fairly accurate indicator of BTC’s progress.
Net Bitcoin Exchange Flow. Source: CryptoQuant
For example, in the last three weeks alone, on February 22 and February 15, we have had a very large number of visitors. March, two big spikes in BTC exchange comes a local spike.
As a result, many measures within the chain, including transfers of BTC to and from exchanges, have proven very useful in predicting BTC price trends.
However, operators should also be aware that this information is available to all and cannot therefore be considered a miracle metric. As it gains popularity, it can be hijacked by whales, the media and other influential organizations. Ultimately, this can mislead traders and change their sentiment to misrepresent market conditions, especially in the short term.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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