Cryptocurrencies have seen a record seven consecutive weeks of losses, with the king of the ecosystem, Bitcoin, down 55% from its November 2021 highs. But while many investors swam toward shore, deep-pocketed “whales” They are still out there investing in cryptocurrencies, especially buying Bitcoin. Let's take a look at whether we should follow the whales' trail and invest in cryptocurrencies, or return to dry land...
How do we know that whales have been investing in cryptocurrencies?
The following graph uses data from in Glassno on the Bitcoin blockchain to show how many wallets have more than 10.000 Bitcoins (approximately 300 million dollars, in equivalent value). There are currently 94 portfolios at this level that could be considered whales, compared to 84 in mid-February. During the same period, the price of bitcoin has been in free fall, almost reaching $25,000 on May 12, a depreciation of 43%.
Number of bitcoin wallets with more than 10.000 bitcoins. Data obtained from Glassnode.
We already had similar references in the past about the behavior of whales, which we are clear that have good training in investing in cryptocurrencies. We saw one of those references in the depths of the 2018 crypto bear market, and when Bitcoin fell in the wake of the Covid black swan in March 2020. Still, we want to make it clear that whales don't always get it right. As we can see in the chart below, they also accumulated near the peaks of July 2019 (at $14,000/Bitcoin) and November of last year (at $69,000/Bitcoin).
Number of bitcoin wallets with more than 10.000 bitcoins. Data obtained from Glassnode.
Are the whales going to be right this time and should we invest in cryptocurrencies?✅
We use three indicators, which analyze fear, longevity and leverage, as they are the best metrics to see if whales are going in the right direction…
1. The fear and greed index points to Panic.
El cryptocurrency fear and greed index It gives us a good perspective on the general sentiment of the cryptocurrency market. Its value ranges between zero (extreme fear) and 100 (extreme greed), and is currently at 8. It is lower than during the Covid crash and near the 2018 low. The following chart I have for you tracks the price of bitcoin, with the color of each dot showing the level of fear (red dots) or greed (green dots). The biggest accumulations of bitcoin in the past were during times of extreme fear. That said, we can also observe times where extreme fear has lasted longer than desirable, and the price continued to decline in some cases.
Fear and greed index represented against the price of bitcoin. Source: lookingintobitcoin.com.
2. Long-term investors hold on to their cryptocurrencies.
The graph below shows the number of bitcoin wallet addresses that have been inactive for a year or more, holding the same number of bitcoins the entire time. The orange line shows that over 65% of all bitcoins have not moved for over a year. In fact, this number has increased by a couple of percentage points during the most recent crash. In other words, longer-term holders are not selling their bitcoins; Despite the feeling of fear in the market, they have more conviction than ever.
Bitcoin price (blue line) and the percentage of wallet addresses that have not sold bitcoin in a year or more (orange line). Source: lookingintobitcoin.com.
3. Cryptocurrency leveraged investors have been eliminated from the market.✋
As you probably know, many cryptocurrency traders use leverage to increase their exposure to asset volatility by trading cryptocurrency futures. This magnifies the size of the profits when they get it right. But when they make a mistake, they can really lose the house. After the last few massive market declines, seeing signs of a leverage reset gives us clues that many of the speculators have withdrawn from the market (probably eliminated). In the chart below we can see a large drop in open interest (i.e. the volume of open bitcoin futures positions) this month in purple. While this metric could go lower, it's a good sign, at least for now, that much of that leverage has been removed from the system.
Bitcoin open interest (lilac) plotted against Bitcoin price. Source: CryptoQuant.
So should we follow the whales and invest in cryptocurrencies?❓
The data suggests that larger whales are buying into fear. In the past, this would have been a good indicator to invest in cryptocurrencies and accumulate as much as you can. But we must keep in mind that if Bitcoin is forming a major support zone here, it will most likely take a while for it to get back on track. We shouldn't be surprised if we see prices drop again to test the current low (or even make new lows). Aside from the Covid crash, Bitcoin and cryptocurrencies in general have tended to bottom slowly in the past – “V-shaped” recoveries have been few and far between. We think that there is still conviction in the cryptocurrency market and we believe that we are at a level that we could begin to average inflows into bitcoin and maintain in the long term. If the whales are wrong, we will still have the option to buy it even cheaper later. And if they're right, you'll be swimming in their wake to bitcoin's next highs.