Why it’s important to watch Bitcoin whales, more often than you do
Bitcoin whales make more headlines than institutions and retail traders. However, for intuitive reasons, their moves are worth watching out for. Concentrated institutional holdings of Bitcoin pose a risk, the risk of volatility and price manipulation. Whale holdings however influence the supply-demand economics of Bitcoin.
Is this repetitive? Not if you draw insights from their every movement. If there’s one group of entities that influence your portfolio the most, only second to your trading strategy, it is Bitcoin whales. Currently, nearly 6.5 million Bitcoin addresses control $100 billion worth of Bitcoin based on Bloomberg’s data. Compare that to over 40 Million Coinbase users holding $100 billion worth of Bitcoin.
This puts Bitcoin’s distribution in perspective, and this distribution influences the outflow on exchanges like Coinbase Pro, accumulation cycles, and increased volatility. These three metrics top the list influencing Bitcoin’s price on spot exchanges.
As a retail trader, staying ahead of the curve is critical to your strategy, and whale movement, like wallet inflows, outflows and buying/selling pressure offer insight for tuning your strategy to make the most of changing price trends. As Bitcoin’s price dropped over 10% after hitting a new ATH above $61000, most retail traders who purchased above $58330 (the previous ATH) sold.
The moving PNL data from whalemaps shows that the losses in Bitcoin transactions are currently over 4 times that of profits. This accounts for over $336 Million worth of losses on the Bitcoin network. This number is not alarming, however, it is a sign that traders are booking unrealized losses. Since the whale accumulation pattern hasn’t changed, this shows the losses incurred by retail traders, and that is alarming.
This metric signals that whales may support Bitcoin’s price above $55000 this week is Large Wallet inflows, though massive accumulation occurred at the $47000 level that can be considered the pain price, in case there is further correction. Since there was accumulation at the $55000 level, the price is likely to sustain above this level.
Whale accumulation above the $55000 level is represented by green bubbles in the above chart. This could mean that Bitcoin whales have derisked buying and accumulation above this price level. If the consolidation continues and the price drops to the $47000 level, further accumulation may lead to increased demand on spot exchanges and increased Bitcoin outflow.
The last time this combination led to a price rise and a run to the $61683 level. This time there is a likelihood that the price may be rangebound since it has been that way post hitting a new ATH more than twice in the current market cycle.
It is critical that retail traders note the tides of change, literally, as whales are moving out of spot exchanges and hitting derivatives exchanges. The latter offers more volatility and lowered risk making it lucrative for retail traders as well and this shift, and derivatives activity signals the trend reversals in Bitcoin’s price action.
The recent dip was another point of accumulation, however, HODLer composition is largely the same as it was pre-ATH. Both demand and volatility are high. Open interest for Bitcoin futures is now at $21 Billion, after the ATH of $23 Billion over the past weekend. Whales are moving quietly, but retail traders are following, increasing leverage and buying pressure on Bitcoin, opening the possibility of a bounce back to the $60000 level and higher this week.