Season 3 | Week 1 [Homework Post for @wahyunahrul] [WHALES THE DRIVER OF CRYPTOCURRENCY VALUE] by @huzaifanaveed
Hello everyone. This is my assignment post for professor @wahyunahrul
This week's post mainly focuses on the Cryptomarket whales
In this post you'll learn all about the whales and why they're feared by the small investors. I'll also be sharing some real life coin examples which could give me good profits if I were a Crypto whale
So here we go;
- Based on the understanding that you've gained from this class, explain why whales are so feared by small investors?
Before discussing why small investors fear whales lets understand what does the term whale mean.
Any individual, or a group of individuals or any particular company who hold a large amount of any particular crypto currencies are regarded as whales
They basically 'control' the market as they have enough influence and power that their one move could change the market trend and give rise to volatility in the market.
Why do small investors fear whales?
- Manipulating The Market
There are two ways in which whales manipulate the market.
a) The whales in the market usually stock up on a certain Cryptocurrency by investing in huge amount of capital. This sends a spike in the prices of that coin. The whales, then carry out with immense buy orders in the market at much higher prices compared to the prices in the market. Due to this act the traders in that market are bound to raise the prices of their bids as well.
b) The concept of Sell wall
When whales plan on accumulating their desired crypto coin, they set on huge sell orders that is comparatively way lower than other sell orders in the market. This will create a huge chaos in the market as the price of that coin will fall drastically.
When the price has fallen enough upto the desired price of the whales, they will buy those coins and accumulate them.
- Supply and Demand
Lets understand it in the layman's terms first:
Imagine a viral infection has spread out in a particular area which can be cured by a particular medicine. The demand for that medicine sky rockets. Everyone wants to have that medicine and in no time there's a shortage of the medicine. Now what happens when there's a scarcity of some item and it's in huge demands, the price of that asset goes up. If one store has that medicine he will charge more money than it's original price, takimg the advantage of that situation.
The same happens in the Cryptomarket. The Whale accumulates the assets and when there is a scarcity, he sells off the assets in his desirable amount. The demand of the assets causes an uptrend as more and more people want to invest in it.
During the distribution phase the whale is selling and thus the stock is going in different hands. This increases the supply of the asset. Now when everyone has the asset, and it is easily available, a downtrend starts taking place.
When there is equal amount of supply and demand the price of the asset will be static and no sudden uptrends or downtrends will take place.
We should be extremely careful while trading in a market alongside whales. Their influence on the market is incomparable. One of the finest examples of a whale is Elon Musk
Example of his influence as a whale on the market is shown below
FEB 8 2021
𝑻𝒆𝒔𝒍𝒂 𝒃𝒖𝒚𝒔 $1.5 𝒃𝒊𝒍𝒍𝒊𝒐𝒏 𝒃𝒊𝒕𝒄𝒐𝒊𝒏𝒔. 𝑷𝒍𝒂𝒏𝒔 𝒕𝒐 𝒂𝒄𝒄𝒆𝒑𝒕 𝒊𝒕 𝒂𝒔 𝒑𝒂𝒚𝒎𝒆𝒏𝒕.
as a result the bitcoin price skyrocketed
MAY 13 2021
𝑻𝒆𝒔𝒍𝒂 𝒔𝒕𝒐𝒑𝒔 𝒕𝒂𝒌𝒊𝒏𝒈 𝒃𝒊𝒕𝒄𝒐𝒊𝒏 𝒂𝒔 𝒑𝒂𝒚𝒎𝒆𝒏𝒕
as a result BTC prices crashed
screenshot taken from tradingview.com
Another finest example of a whale in the Cryptomarket is TIM DRAPER
This guy honestly is a mastermind according to me. He is the Founder of Draper Fisher Jurvetson (DFJ) ,Draper University, Draper Venture Network, Draper Associates and Draper Goren Holm.
WHY IS HE CONSIDERED AS A WHALE?
In 2014 he purchased around 30,000 Bitcoins from the Silk road seize. when the U.S. Marshall’s office auctioned nearly 30,000 BTC. Tim decided to attend the auction, and purchased 29,656 coins at $632 apiece — $14 above the going rate on spot exchanges. In all, he spent $18.74 million on Bitcoin.
Currently the price of BTC stands on $33k
He's already had a fair share of profits on his investment.
2). Will we be able to take advantages of the existence of the whale that is so feared?
As I have thoroughly discussed and explained the game and the manipulation of the Whales above, I think the safest way to play in the market is to play along the whales.You cannot overcome or beat the Whales as you don't even have the capital to start off with in the first place. So how about you tag along him and make profits for yourself as well.
There's a very famous quote:
Make hay while the sun shines
Which means to make the most of a favourable situation while it lasts.
So as a trader myself it's in my best interest to play along the whales and try to make profits in all these phases;
- ACCUMULATION: The whale will attract the investors and tempt them to buy the assets at a lower price that he has been gathering the assets on.
- UPTREND: A common concept of supply/demand in any market. If a person has accumulated all the assets, a scarcity is meant to take place. The whale will basically control the prices and make them go up. When investors notice a rise in the price of any particular assets they surely will be tempted and will buy these assets thus increasing the demand which will make the trend go up
- DISTRIBUTION: In this phase we will once again observe the sideways movement of the chart, that is because the whale will start selling the assets at the highest prices possible before a downtrend gets started as the demands till then would have been completely met.
- DOWNTREND: This is where the whale will force the market towards a bearish trend. The price will be lowered which will leave the investors in a position where they will try to exit the market without having losses. All the investors will sell their owned assets which will increase the supply and we will see a huge downward movement, a bear market.
Even though I will try to play along the whale but still somethings are very important in doing so.
Analysis of the market
Yes. This is the most vital point for me. I mean you cant just jump blindly into the market in false hopes of huge profits. You will have to understand the market trend first. Observe whether there is a bullish trend or a bearish trend.
Analyze; is the market in the supply position or in demand position? Should you enter the market while its in a dowtrend or not? Where do you think you can exit the market with the most profits? Answer these questions to yourself first then jump in
If I were investing in a market I'd first try to find the accumulation phase. I won't hurriedly and heedlessly jump in the market. I believe patience is the key. Even if I miss one cycle I will trade in the second, but atleast I will be completely sure and I would have analyzed the market completely. I will invest when I see the market trend has started going upwards and will pullout as soon as the market reaches the the downward trend.
So, analyze the market first, then trade
Take assistance of the Technical indicators
This is a must for me and an advice to you all, that you should use Technical indicators as well.
Take assistance from the Relative Strength Index(RSI) See if the market is closer to the 70 line or the 30 line. If its closer to the 70 line you should probably sell your assets and pull out with profits (if you had entered the market in a good position)
If the market is closer to the 30 line its time to invest in the market and get the assets in lower price. It's all about analysis.
3). Find an example of a whale's cycle on a cryptocurrency chart, and do a detailed analysis of the phases in the cryptocurrency chart (don't take the cryptocurrencies that are ranked in the top 10 as examples). (Screenshot Required)
For this question I will be using the example of the trading pair ENJ/USDT
I am also activating the Moving average convergance divergence indicators for better understanding.
We can clearly see:
- Accumulation: You can clearly observe that the price of the asset is sidewards in this phase and the movement of volume is also stable.
- Uptrend: the uptrend in the screenshot can be seen and if you observe its quite symmetrical. There weren't any re-accumulation phases in this uptrend. The traders have started investing.
- Distribution: The market gets stable for some time. The supply from this point increasing as the investors start selling which will lead to a downtrend.
- Downtrend: The price falls and there were two re-distribution phases in the screenshot which you can see as I have marked them. The supply increases thus the price falls.
Summary on this detailed analysis
The best ways of getting profits could be to;
- buy at the end of the accumulation phase
- hold on to your assets during the uptrend
- Take profits in the distribution phase
- pull out from the market at the start of the downtrend
4). If you are a “Whale”, what cryptocurrency would you choose to invest or trade (except those that are in the top 10), explain why you chose that cryptocurrency.
If I were a whale I'd be investing in EOS
Reasons for chosing this coin
With a market cap of an immense $3B it is one of the most fastest growing currencies. It has a circulation supply of $9M and stands on number 27 on the crypto market.
It was founded by Mr Daniel Larimer and Brendan Blumer with an issuance price of $1.08
It's current price is $3.88 which shows it has a huge tendancy of increasing in price over the period of time.
Furthermore it has majorly improved in the scalability problems faced in BTC and ETH
It works on the Delegated Proof of stake consensus which I believe is the most democratic way of validating the transactions on any blockchain network as the witnesses and the delegates are voted by the users. This has increased its consensus speed.
Furthermore as you can see in the screenshot below, it shows volatility in the price, which basically means for a trader like me, i can do quick trading on an hourly time frame or a 15 min time frame trading and pull out with good profits.
5). Do a kind of analysis as a whale with the phases that I explained earlier on the chart of your chosen cryptocurrency, show where you will start buying the cryptocurrency, and explain how you will take profit. (Screenshot Required)
For this question I'll be demonstrating on EOS
- Accumulation: at this stage I'll start buying the coin in small chunks and wait for the whale to join in the market and drag it in a bull market
- Uptrend: during the uptrend I'll flow with the tide and invest in some good money while the trend is still moving upwards
- Distribution: This will be the phase where I'll be selling off my assets in a good profit. I'll seize the opportunity to take profits
- Downtrend: Once the market starts the bearish trend I'll wait for it to reach the lowest point. And that will be the point where I'll be investing in again.
Following the trend, analysing the market and using indicators is how you make good profits in my opinion.
I'd like to give an advice of moving with the whale. You don't have the capital for competing with the whale. The best thing in your interest would be to trade alongside the whale and make profits while you can.
In this lecture we learned in-depth about the whale of the Cryptomarket and how this whale manipulates the market. We learned the strategies of making profits in the market. We then discussed about the different phases where you can trade and pull out with good profits. After that I gave example of real life crypto chart for your better understanding.
Conclusively, thank you professor @wahyunahrul for this informative lecture. It was a really interesting topic and a very important one too. I enjoyed making this post. Hope you have a good read as well
Regards,
@huzaifanaveed1
ps: all the screenshots are taken from my binance account and tradingview
Excellent work. I am reading your posts and the work is quite amazing.
Thank you. The goal is to write in simple words so that it is easily understandable