Crypto Academy / Season 3 / Week 1- Homework Post for Professor @wahyunahrul - Topic: Whales - The Driver Of Cryptocurrency Value.
Looking at the trading chart of Ethereum (and cryptocurrencies generally) as of two months ago, and its chart today, one can't help but wonder how such as drastic change can happen in such a short period of time.
The central theme of cryptocurrencies is the word "Decentralized" which means no one has absolute control over the system, but with the way the market has been going on lately and how a person or group of persons influence the whole market favouring only themselves while hurting the masses, people are beginning to wonder if the word "decentralized" still stands for what it means".
Every system must have a control system, it happens naturally whether we like it or not. The rich ruleth over the poor, the Bible says, regardless of whatever term the government is called. Morgan Wallen also meant the same thing when he said "All animals are equal but some animal are more equal than others".
We, the small crypto investors can't dictate to the whales what they should do with their money, neither can we stop them from moving the market in the direction that will favor them, as they hold most of the chips of the market. Our only option is to figure out a way of not letting their moves affect us.
In today's lecture, professor @wahyunahrul while teaching on the topic "Whales - The Driver Of Cryptocurrency Value" has shown us how to utilize the moves of the whales in a way favorable to us. This post is my response to the assignment he gave after the class.
Note: Would you like to get some drinks in your area? Check out My Recipe Checklist Guides, have a fun day.
Question 1:- BASED ON THE UNDERSTANDING THAT YOU'VE GAINED FROM THIS CLASS, EXPLAIN WHY WHALES ARE SO FEARED BY SMALL INVESTORS?
Let's beginning first by defining whales in terms of cryptocurrencies. Whales is the term given to those individuals who own a large amount of any cryptocurrency. Due to the large amount of the crypto currency they own, they can easily manipulate the value of the cryptocurrency they posses. They can make the value of a cryptocurrency rise within a short period of them, and in the same manner, they can crash the market within an hour.
How do they Influence the market and why to small investors fear them?
The rise or fall in the value of cryptocurrencies follows the laws of demand and supply. When the demand is much, and there is limited stock, then the price of the stock goes up. If on the other hand the supply becomes so much more than the demand (which happens when the number of people that are selling becomes bigger than the buyers) the price goes down.
Now, whales hold in their possession large chunk of cryptocurrencies, which they can put into the market or remove at will, depending on which move favors them at the moment. Since whales only invest on cryptocurrencies that are limited in number, whenever they put or remove their coins from the market, its effect is felt.
If they start buying up cryptocurrencies in large amount, it drives the value of the currency up, as it suddenly causes a shortage in the number of coins in circulation, making demand bigger than supply. According to economics, once this happens the market goes up, as more people are chasing fewer goods. If on the other hand they start selling the large amount of coins they have in their reserve, they cause the number of coins in the market to become too much resulting to the devaluation of the cryptocurrency.
Whales are very smart. They know that what really drives the market is the people's sentiment and not only their buying and selling, so what they do is they issue out statements that will influence the masses decision to buy or sell that particular crypto they invested in. Most of the time the masses follow them, and they end up regretting it because, by the time the masses will know that they have been tricked by the whales, it would have been too late.
Take for instance the current Bitcoin depreciation, we saw a bitcoin fall from $49,000 to $33,000 in one hour, this was intended by whales to make small investors to fret and sell the coins they hold to them. This trick works everytime, in fact, just last week a report from Philip Gradwell Chainalysis chief economist states that whales bought more than 77,000 bitcoin within that week, further reducing the number of coins in circulation. A month or two when they have accumulated enough, they will make a move that will pump the price of the market to a favorable price to which they will sale and make more gain. Then, small time investors who fretted and sold their Bitcoin at a low price will now pay heavily just to buy it back.
Question 2:- WILL WE BE ABLE TO TAKE ADVANTAGES OF THE EXISTENCE OF THE WHALE THAT IS SO FEARED?
Since we can't out-smart or out-resource the whales, the only thing we can do is to find a way to make their moves or predict their moves so that we won't fall victims of their tricks, rather we end up making profits when they do.
How do we take advantage of their existence?
In today's class Professor @wahyunahrul has taught us that all moves by the whales occur in four stages: accumulation, uptrend, distribution and finally downtrend. We will never know exactly when whales will begin to implement any of the stages, but at least by studying the market and also the news, we can tell when make a move has already began to happen.
A whale will never make a move that will not profit him on the long run. So, what should we do as small investors? All we should do is to simply watch the whales, and make moves in the direction they are making them (after confirming that it's not a trick move). For instance, in this period while every thing points to the fact it's best to sell so as to cut losses, the whales are buying up Bitcoin.
The indication is that we are in the accumulation stage and something massive is about to happen. As a small investor, the only good option you have is to hold on to your coin and not sell it to the whales, and if you have more spare money, use it to buy more coins, as the whales are likely not going to devalue the market anymore as they have began to accumulate. As you hold on to it, keep watching their moves through the distribution stages and the uptrend when you notice a slight decline from the uptrend, just know that they have began to sell their coins, therefore it's wise you sell yours too.
Question 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)
Currently, according to coinmarketcap the top 10 coins are as shown in the screenshot below.
Using the cryptocurrency WAVES (which is not listed among the top 10 cryptocurrencies) we can see that whales play around with not just the top 10 coins, but several other coins.
Below is a market chart showing the daily tradings of WAVES/USD. Within the months of April, May and June, one can clearly see the movement of whales. I will be explaining the moves below.
- Accumulation Phase:-
The accumulation phase happened around the month of April. As at that time, the value of Waves has fallen to $10 per one. The accumulation process which started from late March continued to the end of April before the next phase began. During this period the whales bought up so many WAVES owned by small investors.
- Uptrend Phase:-
The Uptrend Phase started almost at the ending of April and took off in full force early May. During this phase, the price of WAVES rose from $13 to more than $35. This is almost a 200% increase. The whole uptrend Phase happened within 4 to 5 days, as shown in the screenshot below, which implies that the uptrend was caused by whales.
- Distribution Phase:-
After the Uptrend Phase, the whales who were so eager to cash out initiated the next phase which is the distribution phase. In this phase, it appears as if the market is relatively stable when actually it's not. It is at this stage that the whales begin to sell their stuff is moderate quantities so as not to shake the market. The small time investors who have seen the sudden rise in WAVES will begin to buy so as to make little consolation profit. This is where they make mistake, as this stage doesn't last long. In the chart screenshotted above, we can see that this stage only lasted till the middle of May before the next phase began.
- Downtrend Phase:-
By the time the market gets to this phase, the whales have already sold off a considerable amount of their coins. It is at this stage that the small investors will realize they are tricked, and they will be forced to sell their coins at a price lower than what they bought out so as not to lose all their money. This is where panic sell sets in, and everyone begins to sell, causing so much supply with very little demand. This further more devalues the stock, and the Downtrend continues till when it gets to a price that the whales considers it's best to buy up and replace the stock they sold off. Thus the cycle keeps repeating itself.
Question 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, the cryptocurrency I will choose to invest in, aside the top 10 cryptocurrencies is "Chainlink". There are several things a whale considers before investing on a cryptocurrency. They are:
- Its white paper.
- How consistent has the cryptocurrency been since it was launched.
- It's volatility.
Of all the three, they consider the Volatility of a coin the most before investing in it. A coin that isn't highly volatile will not be easily manipulated by whales, thus, it's not profitable to then. Take for instance, whales don't invest so much in stable coins such as BUSD and USDT because they can't be easily influenced, and their values always ranges within 1 USD.
But Chainlink itself is a volatile currency. Considering its chart in the last months as shown above we can see how easily it might have been influenced by whales, and it's recent large drop might be capitalized by whales in accumulating its coins.
Question 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)
Using the trading Chart For Chainlink as shown above, I will show how I will make profit from chainLink as a whale.
- Accumulation Phase:
From the screenshot above we can see that after the decline in the price of Chainlink, from $35 to $25 dollars in February, it maintained that price range of $25 to $30 from that time till ending of April, falsely rising only once around April before returning to $30. As a whale I would have started buying around March and would have continued till mid April, as shown in screenshot below. By that time, I would have accumulated enough coins that will make the Uptrend worth it.
- Uptrend Phase:-
The more I accumulate the lower the number of Chainlink in the market, thus the price of the coin begins to increase gradually around April ending as shown in the screenshot below. By this time some wise investors who follow the moves of Whales will begin to buy more of Chainlink, resulting to a further increase in the price of the coin. At this point, I will stop buying, instead, I will allow the small investors who rush in to buy the rising coin pump the coin the more. From the chart above we can see that this move resulted to the price of Chainlink rising from $30 to $53 dollars.
- Distribution Phase:-
When I believe that the value of the coin has risen up enough to make the profit worth while I will begin to sell my coins in moderate amount at different transactions. When I begin to do this, since I am selling large amount of the cryptocurrency and small time investors are still buying, the market will appear to be stable, giving me the opportunity to sell off most of my coin at a reasonable amount within $40 to $50 dollars.
- Downtrend Phase:-
Screenshot from TradingView
The more I sell, the more the market becomes unbalanced, and finally when the small time investors realize I have sold off most of my coin, they will begin to panic sell. Then I will stop selling, as I have already made enough profit. The more the small time investors sell, the lower the value of the coin, and this will continue to a point the coin falls to or below the price I bought it the first time, then I will begin to buy again.
Looking at the chart today, the downtrend started around $40 and continued till $18. If the value remains $18 for a week more, then as a whale, I will begin to buy Chainlink up again.
CONCLUSION
The strategy whales uses in enriching themselves is a self sustaining strategy. It worked yesterday, it is working today and will still work tomorrow, because they have the large amount of coins that influences the market. Although collectively the small investors have the number of coins to move the market to their favor, but since they don't have an organized community, their power will always remain potential and never to be used.
Considering all these, it's a fact that small investors cannot beat the whales, and since we can't beat them, it's advisable that we join them by paying attention to their moves, taking the steps they take and selling off our coins when they begin to do so in the distribution phase, only then can we make enough profit and save ourselves from loss in this cryptocurrency market.
Thank you professor @wahyunahrul for this wonderful lesson. Am very grateful sir.
Also read this car related article: Flashing Brake Warning Light on the Dashboard