There are various methods of analysing the crypto market. The popular ones are Technical Analysis (TA) and Fundamental Analysis (FA).
TA involves analysing price charts. FA involves reading whitepapers, roadmaps, news and gathering information about the project.
(These definitions are extremely oversimplified)
One method that is not often talked about is On-Chain analysis
On-chain analysis involves analysing activities on the blockchain. Metrics such as the number of non-zero balance wallets on a blockchain, the number of whales, hash rate of the network etc.
These metrics also affect the price of a project.
Some of the tools used for on-chain analysis include Whale Alerts and Glassnode.
Now, Whales are large holders of a coin/token in a blockchain. There is no standard threshold for who a whale is or not.
The general idea is that if that person or people buy or sell, it would move the price of the project either upward or downwards depending on whether they buy or sell.
Since the blockchain is open and distributed, it means everyone can monitor all wallets.
Simply put, you will know how much everyone has in their account. You may not know who the person is unless they publicly published their address, but you would know the amount held in their wallet.
This means you can predict a move in the price of a project if you follow the activity of a whale.
This is where Whale Alerts are useful. There is a Whale Alert on Twitter.
The account uses an API to monitor transactions on various blockchains above a particular quantity which it considers as a Whale.
There are three types of movements/alerts you would see on the account.
Here is how to interpret these alerts:
- Transfer from a wallet to an exchange
This usually makes the whale intends to trade on the exchange. Depending on the type of coin or token, you can determine if the price would go up or down.
From the screenshot I posted above, the whale transferred 20 million BUSD (USD or dollars) to Binance. It is hard to predict if the tokens would be converted to fiat or be used to buy a coin/token, however, there are higher chances the whale intends to buy more cryptocurrencies, which is overall positive for the market as the price could move upward.
This alert is easier to predict.
The whale transferred 1,200 BTC ($46 million) to Coinbase. It usually means there are high chances the BTC will be sold for another token or stable coin (dollars).
This is generally a bearish signal. Selling drops the price of a cryptocurrency.
This also (partly) explains the current drop in the price of Bitcoin.
2. Transfer from one exchange to another
This is transaction is pretty hard to predict as there are no clear signs, but again, there are high odds of selling.
The whale may transfer across exchanges to get access to more altcoins or save trading fees or just sell.
The general rule of thumb is that the more coins on an exchange, the higher the chances of selling.
It is always better for a bulk of a coin or token to be off exchange platforms as it is less likely for them to be sold which then drives the price downwards.
3. Transfer from exchange to a wallet
This means coins are leaving the exchange platform to a wallet. This usually makes the whale intends to hold and doesn’t plan to sell anytime soon.
This is bullish as the price will remain stable and rise as there will be less crypto on the exchanges for trading. If a token is in high demand and it is scarce, the price always goes up.
Make sense?
This is basically how to read and interpret Whale Alerts.
You could just follow the account on Twitter, it is way easier than physically monitoring every transaction on the blockchain.
