Traders are increasingly checking network data to “predict” the short and long-term price trend of Bitcoin (BTC) using platforms like CryptoQuant, Glassnode and WhaleAlert.
In particular, data points such as Bitcoin exchange inflows and outflows and stable currency inflows are actively used by traders to anticipate where the BTC might go next.
499 #BTC (29,979,163 USD) transferred from unknown portfolio to #Coinbasehttps://t.co/zkhywRQS82
– Whale alert (@whale_alert) March 14, 2021
However, this type of data should be considered with caution, as large holders also realize that this data is being used more and more by many individuals in their trading strategies. Consequently, individuals or whales with a high net worth can manipulate this data to influence the market to their advantage – but how?
On-chain Bitcoin data can be used for “psyops”
When large amounts of Bitcoin are deposited on a stock exchange, it usually indicates that a whale or a high-net worth investor is planning to sell BTC, at least in theory.
Investors who have a large amount of Bitcoins generally leave them in non-custodial or self-hosted portfolios for privacy and security reasons.
Therefore, when these shares hit the stock markets, it appears that whales are about to exert strong selling pressure on the market.
However, as whales know that investors can track deposits using these chain data tracking platforms, this opens the door to a false situation.
In technical analysis, a “fakeout” is a term used to refer to a situation where a trader enters a position anticipating a future transaction signal or price movement, but the signal or movement never develops and the asset moves in the opposite direction.
For example, whales can deposit large amounts of BTC in various exchanges, making it appear that they are selling a lot of BTC, causing fear in the market to overturn BTC.
In reality, whales may not even be selling BTC deposited on the stock exchanges. Instead, they can use this counterfeiting situation to buy the asset at a lower price, for example.
Known pseudonym trader Cantering Clark explained:
“It is fair to say that the on-chain data and the shuffling of Bitcoins from wallets to purses and vice versa is an abused maneuver now. Do you think a big player is going to make them known in such an open way that they plan to sell” I I think everyone still falls for the room trick? “
Ki Young Ju, CEO of CryptoQuant, raised a similar point about what he calls “psyops” – psychological operations – with on-chain data.
Ju noted that whales can deposit BTC on exchanges to change the market’s sentiment from greed to fear.
The negative sentiment of the market alone may be enough to lower the price, which can also lead to cascading liquidations if the futures market is overcrowded. Ju said:
“Speculative assumption, but whales can deposit a large amount of BTC in exchanges to scare people, as many people follow whale warnings.”
For example, Gemini reportedly saw large BTC deposits before Bitcoin fell on March 15 to as low as $ 54,500.
At the time, Ju emphasized that, although they could be sales orders, it could also be crazy to make the market think that sales pressure was coming. He explained:
“Maybe it’s one of three: 1. Psyops 2. Gemini running a private brokerage service, executing sales orders for other exchanges. 3. Some brokerage services use Gemini Custody, executing sales orders for other exchanges.”
According to Philip Swift, analyst and co-founder of Decentrader:
“It can be dangerous for traders to put too much weight on the importance of cross-wallet transaction movements on the Bitcoin blockchain. As we saw today, there is often confusion about who actually has specific wallets.”
Swift further explained that “there is clearly an opportunity for ‘pysops’, where big players deceive avid wallet watchers by making them think that funds are being moved before they are sold on the market.”
Regarding these portfolio transfers, Swift said:
“That is not the intention, the intention is simply to trick people into thinking that Bitcoin is about to be sold. It is important to remember that big players have many other ways to buy or sell $ BTC, like OTC, by rolling out future positions, etc. . They don’t always need to move their funds on the net before buying or selling. “
Very accurate, but no silver bullet
However, Bitcoin deposits on the exchanges have historically been a fairly accurate predictor of the direction the BTC will go.
For example, in the past three weeks, two major spikes in BTC’s exchange rate flow marked the local peak on February 22 and March 15.
Therefore, many metrics in the chain, including BTC transfers to and from exchanges, proved to be very useful in anticipating the BTC price action.
But traders should also be aware that this information is open to everyone and therefore cannot be considered the silver bullet for metrics. As his popularity increases, he may be attacked by whales, the media and other influential entities. This can ultimately mislead traders and change sentiment, giving a false picture of market conditions, especially in the short term.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.