Market manipulation in both cryptocurrency and the stock market is a term that comes with a caveat. It inherently refers to illicit or nefarious activity within the market. If you are not aware of how to know when it’s happening, it can cause a significant percentage of a trader’s losses, or gains.
Market manipulation takes many forms. Pump and dumps, ramping, wash trading, naked shorting, and cornering, to name just a few. However, all forms of manipulation represent trades that artificially change the price of an asset. This price change can then be capitalized upon by those who are aware the manipulation is taking place.
Knowing that manipulation occurs, both legal and illegal, how can we strategize our trading accordingly? This question is addressed below.
What is a Whale?
A “whale” is the term used to refer to holders of sufficiently large amounts of cryptocurrency. A whale has the ability to manipulate a market because their trades can be large enough to cause significant price movements in either the positive or negative direction. When the whales move, the markets move.
Whales exist in the stock market as well; they’re just not referred to as such. The behaviour of the stock market is also different, largely due to the existence of regulations. For example, pump and dumps are illegal on the stock market, and so we see “whale” like figures take to other means to manipulate the market. This is precisely what we saw with the GameStop fiasco in February with hedge funds naked shorting GME stock.
So if manipulation is caused by the movements of whales, how do we track the whales?
How To Go Whale Watching
To act on the movements of a whale, you need quick access to information. In the stock market, if you’re not a well-connected trader, then often the media or company balance sheets are our best sources of whale activity. These sources are often too little, and too late.
Cryptocurrencies, however, provide us with the ability to do “on-chain” analysis. This means it is possible to view the holdings and transaction history of every account holder thanks to blockchain. Because a blockchain is updated in real time, you have the ability to follow a whale’s on-chain movements on a moment-to-moment basis. The twitter account WhaleAlert was designed specifically to alert its followers when it detects a large transaction on a blockchain. In the days before the bitcoin dump from $42k to $30k in mid may, we saw large amounts of bitcoin move from wallets, to exchanges.
How To Adjust Trading Strategies
To crosscheck market fluctuations with the actions of whales, getting notified by WhaleAlert can do the trick. Another method is by looking at on-chain data to add context to market activity. That way, at least you have accurate data to support your assumptions.
Alternatively, applying whale data to known market indicators provides two points of analysis for staying aware of market manipulation. For example, the recent bitcoin sell-off follows a chart pattern known as the Wyckoff Method. Following bitcoin exchange inflows/outflows in contrast with early indicators of the Wyckoff Method could have prepared you for the most recent dip.
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