Platforms such as CryptoQuant, Glassnode and WhaleAlert, which are on-chain data sources, are followed to “predict” the short and long-term price trend in the Bitcoin (BTC) price.
The amount of Bitcoin entering and leaving the exchanges and the stablecoin entries used in these transactions are actively used to predict where BTCs may go later.
— Whale Alert (@whale_alert) March 14, 2021
Still, such data should be seen as a grain of sand on the beach. Because investors or whales with large savings can manipulate this data to turn the market to their advantage.
On-chain Bitcoin data can be used for “psychological operation”
When large amounts of Bitcoin are invested in any exchange, it is often thought that whales or an investor with a large amount of money are planning to sell BTC.
Investors with large amounts of Bitcoin usually store it in their own wallets for privacy and security reasons. Therefore, when the savings reach the stock markets, the impression is created that the whales will exert a great selling pressure in the market.
However, whales know that investors can track deposits through such on-chain data monitoring platforms, so they can sometimes make fake moves.
This is precisely the situation where traders enter the position by predicting the trade signal or price movement, which is called “fakeout” in technical analysis, but the signal or movement never develops and the asset moves in the opposite direction.
For example, whales can deposit large amounts of BTC on various exchanges, which appears to be selling too much BTC, creating a fear of lowering BTC in the market.
In reality, whales may not be selling BTC at all that they have deposited on exchanges. Instead, they may have made a fraudulent transaction to buy the asset at a lower price.
Cantering Clark, a well-known trader, on the subject it says:
“It’s fair to say that on-chain data flowing from the wallet to the stock markets or vice versa is badly affecting the Bitcoin price. Do you think a large investor will openly announce the hefty amount he plans to sell? I think everyone is still falling for the same trick.”
CryptoQuant CEO Ki Young Ju stated that “psyops (psychological operation)” was carried out with on-chain data:
“Whales can invest large amounts of BTC in exchanges to scare people, as many people know that they track their trading movements.”
Just before the Bitcoin price dropped to $ 54,500 on the Gemini exchange on March 15, it was reported that large amounts of BTC deposits were transferred to the exchange.
At the time, Ju suggested that these orders were manipulated (psyops) to put the market under selling pressure:
“Perhaps one of three: 1. Psyops 2. Gemini runs a special brokerage service, issuing sell orders to other exchanges. 3. Some brokerage services use the Gemini custody solution to issue sell orders to other exchanges.
Very accurate but not a magic wand
However, transferring Bitcoin to exchanges has historically been a fairly accurate measure of BTC’s direction over and over again.
There have been two big increases in BTCs entering the stock markets in the last three weeks: February 22 and March 15 …
Many on-chain data, including BTC transfers to and from exchanges, have been very useful in predicting BTC price movement.
However, traders should know that this information is publicly available and that the measurements do not reflect the absolute truth like a magic wand. Because whales can mislead traders and cause false data on market conditions, especially in the short term.
The opinions and comments expressed here belong only to the author. It may not reflect Cointelegraph’s views. Every investment and trading transaction involves risk. When making your decision, you should do your own research.