To be informed of market movements, crypto investors need to identify and track wallets that hold large volumes of the cryptocurrencies they are interested in. How using on-chain tracking tools helps with the automation of the tracking process — explains Arunkumar Krishnakumar on Cointelegraph.
- What are crypto whales?
Most cryptocurrencies have a number of large holders of the asset who can influence the price of the crypto asset. For active investors and crypto traders, it helps to understand the market behaviors of these whales.
Crypto whales refer to large holders of cryptocurrencies. They can be individuals or organizations who often own more than 10% of crypto. For instance, MicroStrategy owns nearly 130,000 Bitcoin (BTC) and can move the price of BTC by their market participation. Therefore, tracking the action of crypto whales provides timely insights into the price movement of a crypto asset.
This is not just a crypto phenomenon. In traditional markets, when a big player like Warren Buffett, a brand or a hedge fund reveals that they have taken a position in a particular asset, the price of the asset rallies or vice-versa. That said, when these players sell an asset, the market typically follows.
With cryptocurrencies and nonfungible tokens (NFTs), all transactions are on-chain. Thanks to the transparency that blockchain offers, transactions performed by wallets held by whales can be spotted by the size of the crypto positions they hold. These wallets can be tracked to then understand how the wider market could behave.
- What is crypto whale tracking?
There are dedicated solutions to track the actions of crypto whales. These solutions can provide analytics on whale actions and, in some instances, can also make investment/trading decisions for the user.
Crypto traders and investors constantly track the amount of cryptocurrencies going in and out of exchanges. When a cryptocurrency like Bitcoin or Ether (ETH) is moved in large quantities into an exchange, it is expected to see some sell action resulting in a fall in price. Conversely, if cryptocurrencies flow out of exchanges into 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 supply resulting in an increase in price. Oftentimes, a whale could buy cryptocurrencies on an exchange and move them into their wallets in large volumes. This could result in a bullish price action for the crypto.
In some scenarios, whales may choose not to disturb the markets by buying or selling on an exchange. They would do an over the counter (OTC) transaction between two wallets. For instance, they may send Bitcoin to a wallet that will send USD Coin (USDC) back, resulting in a sale of BTC without the market spotting the transaction.
When the blockchain records a large transaction, investors can study the transaction and pick up the wallets involved in it. If the wallets hold large cryptocurrency positions, they can be labeled as crypto whale wallets. From then on, a regular check on these wallets and the transactions that are conducted can be insightful in assessing price movements of the crypto held in the wallet.
Whale tracking can be equally beneficial in the NFT markets too. Most NFT communities have large holders of the collection. In many instances, these NFT holders are identified by the community. Tracking the behavior of wallets of these whales can help investors make quick buy/sell decisions.
For instance, if a famous NFT collector or a whale sweeps the floor of a nonfungible token collection, that can indicate high convictions. Followers of the NFT collection and the whale would notice that and purchase the nonfungible tokens. This behavior was noticed with Gary Vaynerchuk several times during the NFT bull market in 2021.
However, it can be overwhelming and time–consuming to manually stay on top of whale action, even when it is just for one cryptocurrency or NFT collection. This is where whale tracking tools come into play.
- What are crypto whale tracking tools used for?
Thanks to whale tracking tools, investors are able to identify wallets that whales own and track them for buy and sell action due to the transparency that blockchain offers. Using tracking tools helps with the automation of the tracking process.
Most crypto investors own more than one cryptocurrency in their portfolio. In order to be informed of market movements, they will need to identify and track several wallets that hold large volumes of the cryptocurrencies they are interested in. On-chain analytics tools offer this functionality.
Tracking tools scan through a blockchain, and when a transaction gets committed by a whale wallet, spot them in real-time and notify the user. These tools can also help identify transactions that are over a specific size, thereby allowing users to conduct discovery of the whales within that crypto ecosystem.
On a similar note, NFT collections can be tracked for actions like the listing of new nonfungible tokens below floor price, sale of NFTs at bid price, floor sweeps, and others. The floor price of a nonfungible token collection is the minimum price at which an NFT can be bought. Occasionally, when the market appetite for an NFT collection is poor, the floor price comes down.
The fall in floor prices often begins with one holder of the NFT listing it below the floor price. Therefore, whale tracking tools can be used to spot such behaviors so that an investor is made aware and act accordingly.
Floor sweep, on the other hand, indicates high demand for an NFT collection. This refers to the action when someone buys many nonfungible tokens in a collection that are listed at the floor price. Whale tracking tools can spot when a whale’s wallet sweeps the floors of a new collection. This will alert NFT investors, who can then start tracking the new collection.
- What are the common crypto whale tracking tools?
Whale tracking tools like Whale Watchers, Whale Bot Alerts, and others can help investors spot whale action and make quick and timely decisions.
Whale tracking tools come with different capabilities, some can be just a simple window on top of a blockchain, while others have analytics and charting capabilities across multiple blockchains. Some only cover crypto whale tracking, while others offer NFT whale tracking too.
Various analytics tools offer just simple analytics and notifications on whale activities, while others provide users with more comprehensive learning opportunities on charts and analytics. Some just do a simple feed, while others tap into channels like Twitter and Telegram to keep users informed.
Some of the key tools for whale watching are Whale Watchers, Whale Bot Alerts, Whale map, Whale alerts, Clank App and Coincarp. Apart from these, tools like Etherscan and Solscan sit on top of their respective blockchains to offer whale-tracking functionalities.
One can get as technically savvy as possible with whale tracking. Yet, market reaction to a whale transaction is not entirely predictable. It is useful to have information around whale behavior, yet, that is just one input that will affect the price action of cryptocurrencies. That is especially true in a market largely driven by macroeconomic factors.