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Crypto Whales

What Are Crypto Whales & Smart Money?

Learn what crypto whales are, how they influence the market, and why you should track them to find the next opportunities.

The price of Bitcoin jumped from $4,200 to $5,000 within just a few hours on April 2, 2019, following a single order to buy 20,000 BTC. The significant purchase changed sentiment surrounding the cryptocurrency, and Bitcoin rallied more than 240% by the end of June 2019. In the end, a single large holder, or crypto whale, kicked off a massive rally.

Let’s take a closer look at crypto whales, how they influence the market, and how investors can track them.

Crypto whales significantly influence the markets—and investors can gain an edge by tracking their movements.

Who Are Crypto Whales?

Crypto whales are entities that hold a large amount of a particular cryptocurrency, placing them in the upper echelons in terms of overall ownership. For example, Bitcoin whales are holders with more than 1,000 BTC—worth nearly $50 million, meaning they hold a significant portion of the liquid amount of BTC in the marketplace.

The actions of crypto whales are noteworthy because they may disproportionately impact the market. For example, someone that holds $100 million in BTC may decide to sell a $20 million stake. If there’s a daily trading volume of $1 billion, the single trade could account for two percent of all transactions for the day.

Nefarious crypto whales may use their leverage to influence the markets in their favor. For example, they could orchestrate a market crash by selling large amounts of a cryptocurrency and then quietly re-enter the market at lower prices over time. Conversely, they may buy a heavily shorted coin to initiate a short squeeze and send prices higher.

Of course, the idea of “whales” or “smart money” isn’t a new term in finance. Stock market investors have always watched large investors, like Warren Buffett, with great interest. In fact, the SEC requires large investors to report their transactions in Schedule 13D/G/F forms that provide investors with timely insights into their actions.

What is On-Chain Analysis?

The SEC may require stock market whales to disclose their holdings in Schedule 13D/G/F filings. When it comes to crypto whales, every transaction appears on the public blockchain. The challenge is tracing transactions across wallets to identify where smart money is moving over time—a practice known as on-chain analysis.

On-chain analysis provides several types of data:

  • Transaction volume.
  • Miner reward details.
  • Exchange inflows or outflows.
  • NFT or DeFi inflows or outflows.

How to Track Transactions

Cryptocurrencies operate on a public blockchain that makes all transactions visible to the public. While transactions are pseudo-anonymous, anyone can see how much cryptocurrency is in a given wallet and its transactions. The problem is that one entity (e.g., a person or fund) can have more than one wallet, making it hard to track whale transactions.

Blockchain analytics startup Nansen aims to solve these problems by helping investors follow where crypto whales are moving their money. 100M+ wallets across Ethereum, Polygon, BSC, Fantom, Avalanche and Celo blockchains, the company enables investors to find potential opportunities for yield farming, liquidity pools, DEX data, and even hot NFT collections.

The company provides high-level data for free on its website, but investors seeking real-time data require premium access. Currently, the company offers a $116 per month package for traders looking for real-time insights into ETH markets, along with a $2,500 per month plan featuring weekly calls, exclusive group chats, and vertical coverage.

For example, the platform helped identify smart money flowing into Shiba Inu coins earlier this year. A few months later, Shiba Inu had become a significant player in the cryptocurrency space. These early indicators can help traders and investors time their moves in and out of cryptocurrencies, DeFi projects, and other opportunities.

Lessons from the Stock Market

Crypto traders and investors should heed some advice from the stock market and avoid common pitfalls when tracking the smart money. In particular, it’s easy to misinterpret the behavior of whales in the financial markets because they each have different strategies, motivations, and other factors influencing their decisions.

There are a few things to keep in mind:

  • Don’t make assumptions. Large investors make moves for a variety of reasons. For instance, someone may sell a large amount of cryptocurrency to cover a personal expense or tax reasons rather than a sudden change in their sentiment.
  • Pick influencers you understand. There are many different types of whales in the stock market. For instance, Warren Buffett is a value investor, whereas Bill Ackman is an activist. In crypto markets, choose wallets that you understand to follow for insights.
  • Look at the bigger picture. The law of large numbers suggests that insights become more precise with more data. Rather than relying on individual influencers, try looking at market-wide information to understand market dynamics and increase confidence.
Crypto Whales
Nansen shows aggregate capital flows. Source: Nansen

Fortunately, platforms like Nansen can help sidestep these concerns. For example, you can use the platform to see aggregate inflows and outflows for crypto tokens. That way, you’re not basing your decision on a single influencer that may have ulterior motives. Instead, you can look at where all smart money goes to make the best decisions.

Looking at the Bigger Picture

Crypto whales provide exceptional insight into upcoming cryptocurrencies and projects worth considering, but tracking their transactions is just one part of the investment process.

Every investor must assess the suitability of a particular cryptocurrency or project for their portfolio and goals. For instance, a long-term investor with a low risk tolerance may benefit from insights on prominent cryptocurrencies, but niche tokens may be too risky for their portfolio. Other traders may be most interested in high-risk, high-reward plays.

In addition to managing risk, traders and investors should also be mindful of their tax obligations. The IRS is cracking down on individuals that don’t pay taxes on cryptocurrency gains, meaning it’s more important than ever to calculate and report capital gains correctly. Otherwise, you could be hit with a retroactive tax bill that includes penalties and interest.

Crypto Whales
ZenLedger makes it easy to stay compliant with evolving IRS laws. Source: ZenLedger

Fortunately, tools like ZenLedger make it easy to comply with tax laws and ensure accuracy. You can easily connect all of your wallets and exchanges, compute capital gains or losses, and accurately fill out tax forms. If you use TurboTax, an integration automatically sends all the information needed at tax time. Try it today for free!

The Bottom Line

Crypto whales have a significant impact on cryptocurrency markets. While not every move is a clear signal, the aggregate behavior of “smart money” can help savvy traders and investors stay ahead of key trends. Platforms like Nansen make it easy to spot these opportunities in real-time before the market moves, providing valuable alpha in the nascent space.

If you trade cryptocurrencies, ZenLedger can help take the stress out of tax time. Our platform automatically aggregates transactions across your wallets and exchanges, computes your capital gains and losses, and even pre-fills popular IRS forms for you to hand over to your accountant. Try it for free today!

ZenLedger readers can take advantage of an exclusive deal – get $200 off 1-year of Nansen’s Standard Plan! This deal is only available through the links below:

Pay With Fiat (Credit/Debit Card): buy stripe

Pay With Crypto: commerce coinbase