If you're anything like me, you were wondering why the price of bitcoin didn't pump with the announcements of big buys from companies like Microstrategies and Square. (I think those companies own around $400 million worth of bitcoin right now, give or take.) So I did a little research to find out, and what I found may help you time the market more accurately in the future. Take a look.
The Microstrategies and Square Buys
When a big company like Square announces that it just purchased $50 million worth of bitcoin, that single announcement is somewhat misleading. The company did not make that purchase all at once. In all likelihood, it happened over weeks or even months. Dozens of traders were split and put the company's money on multiple exchanges. The purchase was actually made in small lots of $100, $250, $500 — anything to look like a retail trader.
Whales, especially when they are getting into a market, want to do so as quietly as possible. If word gets out that someone is making a $50 million buy, their competition may wonder what's going on. If you have multiple companies trying to purchase $50 million worth of bitcoin, that naturally spikes demand. The price goes up. Your original company will then end up paying a premium to meet its investment goal.
Big companies also have the luxury of being able to wait for the market to come to them. $50 million buys that happen in small lots and over time do not move the market because the company waits until its limit orders are filled. It does not chase the market.
Dumb Retail Money
Once a whale is in, that whale benefits from others knowing of its investment. It's free PR to say that you have just made a $50 million buy into an asset. If you are an established entity that is respected in your industry, other buyers will naturally follow your lead. This is why Microstrategies and Square made such a big deal about getting into bitcoin. They knew that the slow retail money would follow them in, and that's how they would get their paper gains and real gains should they decide to flip for a short term profit.
Retail investors are not as sophisticated in their bitcoin buys. Even a small group of retail sellers can push the price up significantly on a crypto exchange if they buy through market orders. Why? They want their bitcoin immediately. If you make a $1000 order of bitcoin, it won't all fill at the same price. The person selling at the current price may only be selling $500. If you want that other $500, you will have to buy it at a higher price.
The retail buyers who purchase through bitcoin ATMs, P2P platforms, Paypal and other means are automatically buying with market orders as well. Additionally, the potential for fractional shares also tends to push the price up, because you get smaller buyers that you normally wouldn't get. Tesla is a great example of this. The stock actually stalled until platforms like Robinhood began to allow fractional share buying. Once that happened, Tesla and the rest of the NASDAQ shot up to record high levels.
The Bitcoin Price Lag
Look for this laggy pattern to occur on every bitcoin bull run. By extension, this will likely be the pattern for many altcoins (not all). Big buyers can get in without pushing up the market. Smaller buyers are not as good at this. Once the whales create a floor for an asset and market it from that floor, the retail buyers will then push the price up from there. The whales benefit, and the retail investors get less benefit because they are FOMOing in and taking market orders.
Use this information to frontrun big buys. You can easily watch the records of exchanges and big wallets — everything on the blockchain is public information. Because you have this information in your hands, you can tear the cover off of the clandestine actions of whales so you don't have to be a blind retail trader.