Most cryptocurrencies have a number of large holders of the asset that can influence the price of the crypto asset. For active investors and cryptocurrency traders, it is useful to understand the market behaviors of these whales.
Crypto whales refer to the large holders of cryptocurrencies. They can be individuals or organizations that often own more than 10% of cryptocurrencies. For example, MicroStrategy owns nearly 130,000 Bitcoin (BTC) and can move the price of BTC based on its market share. Therefore, tracking the action of crypto whales provides timely information about the price movement of a crypto asset.
This is not just a cryptographic phenomenon. In traditional markets, when a big player like Warren Buffett, a brand or a hedge fund reveals that he has taken a position in a particular asset, the price of the asset goes up or vice versa. That being said, when these players sell an asset, the market typically follows.
With cryptocurrencies and non-fungible tokens (NFTs), all transactions are done on-chain. Thanks to the transparency that blockchain offers, transactions made by wallets in the hands of whales can be detected by the size of the crypto positions they hold. These wallets can be tracked to later understand how the broader market might behave.
What is crypto whale tracking?
There are dedicated solutions to track the actions of crypto whales. These solutions can provide analysis on the actions of the whales and, in some cases, can also make investment/trade decisions for the user.
Cryptocurrency traders and investors constantly track the amount of cryptocurrency moving in and out of exchanges. When a cryptocurrency such as Bitcoin or Ether (ETH) moves in large numbers to an exchange, it is expected that there will be some selling action that will result in a drop in price. Conversely, if cryptocurrencies leave exchanges and go to wallets, it is considered a precursor to a rise in price.
This is because when exchanges have a high net outflow of cryptocurrencies, they have reduced the supply, which results in an increase in price. Often a whale could buy cryptocurrency on an exchange and move it to their wallets in large volumes. This could result in bullish price action for the cryptocurrency.
In some scenarios, whales may choose not to disrupt markets by buying or selling on an exchange. They were making an over-the-counter (OTC) transaction between two wallets. For example, they can send Bitcoin to a wallet that will return USD Coin (USDC), resulting in a sale of BTC without the market detecting the transaction.
When the blockchain records a large transaction, investors can study the transaction and collect the wallets involved in it. If the wallets have large positions in cryptocurrency, they can be labeled as crypto whale wallets. From then on, a regular check on these wallets and the transactions that take place can be helpful in evaluating the price movements of the cryptocurrencies held in the wallet.
Whale tracking can also be equally beneficial in NFT markets. Most of the NFT communities have large collection owners. In many cases, these NFT holders are identified by the community. Tracking the behavior of these whales’ portfolios can help investors make quick buy/sell decisions.
For example, if a famous NFT collector or whale sweeps the floor of a non-expendable token collection, that can indicate high convictions. Followers of the NFT collection and the whale would notice that and buy the non-fungible tokens. This behavior was noted with Gary Vaynerchuk multiple times during the NFT bull market in 2021.
However, it can be overwhelming and time consuming to manually keep track of whale action, even when it is just a collection of cryptocurrencies or NFTs. This is where whale tracking tools come into play.
What are crypto whale tracking tools used for?
Thanks to whale tracking tools, investors can identify wallets owned by whales and track them for buying and selling actions due to the transparency that blockchain offers. Using tracking tools helps with automating the tracking process.
Most cryptocurrency investors hold more than one cryptocurrency in their portfolio. To be informed of market movements, they must identify