Just before the weekend Bitcoin started one of the biggest rallies ever. There are several reasons for this. One of the causes that plays a role is whales manipulation. How does that work and how can you, as a smaller trader, respond to it?
The long-term rates of bitcoin and crypto coins indicate whales manipulation. We will show you this. We also explain how you as a smaller trader can anticipate this.
What is whales manipulation?
As you may know, 'whales' are owners of large quantities of crypto coins. They can keep them natural without acting on them. They can also use their possessions to influence the market and thus drive up the price (to sell more expensive) or drop it (to buy cheaper). Unlike other investment markets, this technique is not prohibited in the crypto market. Moreover, the trading volumes were low, which makes such a manipulation reasonably inexpensive to organise.
The fact that Altcoins (Ethereum, Litecoin, etc) increasingly follow Bitcoin also plays a role. Whales manipulation takes place in six phases. These are mapped out on the basis of the run-up to the rally.
These are the 6 phases of whales manipulation
Phase 1: Creating price pressure for bitcoin
In this phase, the price is pushed out of the market in order to force the traders who are speculating on a price increase. This can be seen in the Bitcoin price over the period from 6 to 24 September.
Phase 2: price consolidation
After the optimistic buyers have left the market, it is important to create calm. Whales manipulation therefore requires a consolidating price. This can be seen in the price of Bitcoin in the period from 24 September to 23 October.
Phase 3: test pump
When the market is calm, manipulative whales want to try to estimate the right moment. With a test pump they see how the market reacts to a price increase. This probably happened on the 11th of October.
Phase 4: Creating price pressure
Because optimistic traders build in a stop-loss in time of price pressure and the organizing whales want to buy cheaply for the upcoming rally, it is good to put a strong downward pressure on the price. Many investors are fleeing the market and the price is falling rapidly. We saw this during the crash of last week, on 22-23 October.
Phase 5: Cash in on the gain from the whales manipulation, so pump
When the market is small and the positions are bought at a low price, the market can be boosted and a rapid price increase can be caused. It is also possible to take long positions in order to show an even more positive picture to the buyers who are considering to enter the market. We have clearly seen this happen before and around the weekend.
Phase 6: whales manipulation cycle completed
When the prices increase more and more because more and more investors enter the market, the organisation of the whales manipulation starts to sell. The long positions are abandoned and a new cycle is built. Whether this is the case remains to be seen. The fact is, however, that despite the positive mood, considerable price falls and the liquidation of long positions are now being reported.
In the tweet below you can see the process of Whales manipulation schematically. After the tweet, I will explain how a smaller player can anticipate such a cycle. Of course, as always, DYOR applies.
As a smaller investor, how can you anticipate whales manipulation?
When it comes to whales manipulation, there is actually an artificial rise in price. Unlike an organic rise (which is caused by the fact that investors see an increase in value in the currency and are therefore more willing to invest), there is a good chance that the market will fall again in the short term after a rise in the exchange rate. This can also be seen in the above pattern. Especially the chart makes you aware of this. We also see that the actual manipulations (the use of price falls and price rises) take place in a short period of time.
As we explained earlier, it is therefore important to invest not on the basis of emotion, but on the basis of ratio and a personal investment plan. It is also important to get in and out at the right time. To do this, it is important to analyse the prices properly. Autotrading, as with the cryptohopper tool, is a great tool to automatically get in and out at the moment you want.
Because you determine these moments beforehand on the basis of a rational strategy, you can prevent yourself from collapsing under emotional pressure or reacting too soon or too late.
