Key Takeaways
- Crypto whales are individuals or entities with large crypto holdings who can influence market prices and sentiment through trading activity and strategic moves.
- Common whale manipulation tactics include spoofing, wash trading, pump-and-dump schemes, flash crashes, front-running, and liquidity pulling.
- Whales hold an advantage due to their capital, major influence, access to bots, insider knowledge, and the ability to act quickly across multiple platforms or wallets.
- Understanding whale tactics can help retail traders navigate markets more safely, avoid traps, and make more informed decisions.
In the crypto world – or any marketplace – whales are individuals or entities that hold large amounts of an asset. This enables them to influence the price of that asset, simply by moving their substantial funds in or out of the market – or even just hinting that they might.
Beyond their bank balance, whales are often also well-connected players in the finance or tech world, with access to information, institutional backing, and powerful social networks. These advantages give them leverage far beyond what retail investors possess.
In this article, we’ll explore eight common tactics whales can use to manipulate crypto markets, intentionally or otherwise.
8 Ways Crypto Whales Manipulate the Market
While not all whale activity is inherently malicious, some actively use their status to manipulate prices in ways that can leave retail traders at a disadvantage. Below are eight common strategies that whales use to influence the crypto market.
1. Spoofing the Order Book
Order books are the central mechanism of many crypto exchanges, matching buy and sell orders according to price. Traders also use the data from incoming trades to understand priec action, and where the market is headed. This gives whale wallets an opportunity to shape the market.
Spoofing – also known as a sell/buy wall – is a tactic where whales place large buy or sell orders they don’t intend to fill. Instead, these simply create a suggestion of price action in the market by faking significant demand or supply. For example, a whale may place several massive buy orders just below the current price to suggest strong support., and encourage others to buy in. Once the price rises, the whale cancels the spoofed orders and sells into the demand they helped create.
Unlike small traders, whales have the advantage here because they have the necessary assets in their wallet to place these large orders. The tactic costs little, if anything, and can have a significant impact on the psychology of the market.
Let’s illustrate this with an example. Imagine that a whale places a 10,000 ETH buy at 2% below the current market price. Retail traders see the order and assume the price won’t fall and buy in. Then the whale cancels and dumps tokens for profit.
2. Wash Trading
Wash trading is a common concern on both traditional and crypto markets. It involves buying and selling the same asset back and forth to artificially inflate trading volume and indirectly, price.
This manipulation tactic is commonly used on low-cap tokens or on less-regulated exchanges to make a project appear more active than it is. High trading volume can draw attention, increase rankings on aggregator platforms like CoinMarketCap, and trigger algorithmic interest.
Whales can afford the transaction fees associated with wash trading and have enough liquidity to cycle large amounts of a token through multiple accounts. For example, a whale can control two wallets and repeatedly sell and buy millions of tokens between them. The exchange will report high volume, drawing retail interest. Finally, the whale sells tokens to new buyers at inflated prices.
3. Pump and Dump
The pump and dump is among the most popular crypto scams. The scheme operates by artificially inflating the price of a token, then selling it at the very top for profit. Whales – people with a large stake in a given coin – can use their influence, social media presence, or even private groups to hype a project and increase the value of their own holdings.
Furthermore, whales can coordinate pumps or use influencers to amplify the interest in a project. Once retail traders rush in, the whales sell off their holdings, crashing the price, and, in most cases, killing the token completely.
For example, whales can promote a micro-cap altcoin on X and Discord. The price then skyrockets in hours. As it hits new highs, they sell off their huge holdings, crashing the price and leaving regular traders holding the bag.
4. Flash Crashing
A flash crash happens when a whale suddenly sells a large volume of tokens, causing a dramatic price drop within seconds or minutes. This can trigger panic selling and liquidate leveraged positions. The whale may then buy back at lower prices once the market stabilizes. This tactic is particularly effective in illiquid markets where a single large order can have outsized effects.
What’s specific about flash crashing is that only wallets with enormous holdings can pull this off. But whales also have the capital to re-enter quickly, taking advantage of the fear they just created.
For example, a whale can sell 10,000 BTC at market price on a low-volume day. This massive sell order can cause the price to tank, hitting stop-losses across exchanges. After retail traders panic sell, the whale slowly buys back at a discount.
5. Front-Running
In front-running, a whale (or a bot) detects a large incoming transaction and places their order just ahead of it, profiting from the price movement caused by the original trade.
This often happens on decentralized exchanges (DEXs) due to the public nature of the mempool. Whales monitor pending transactions and insert their orders just before the target transaction is executed.
For example, let’s say that a user places a large buy order for a token on a DEX. A whale bot detects it, front-runs the trade, buys the token slightly earlier, and then sells it back at a higher price after the user’s transaction pushes the price up. In this scenario, front-running turns into a sandwich attack.
6. Liquidity Pulling
Liquidity pulling is when a whale suddenly removes liquidity from a trading pair on a DEX. This can drastically impact the price and stability of a token.
When a whale pulls liquidity, price volatility increases, and slippage grows. Therefore, smaller traders may be unable to execute trades without serious losses. Furthermore, this move can also trigger fear in the market, causing others to exit.
Since whales are often the top liquidity providers in DeFi liquidity pools, their withdrawal affects pricing immediately and allows them to exploit the resulting price imbalance. For example, if a whale removes $2 million worth of ETH/USDT liquidity from a pool, it increases slippage.
They can then buy ETH at an artificially depressed price or sell it during a pump when others can’t trade efficiently.
7. OTC Trading
Over-the-counter (OTC) trading is not inherently malicious. It provides traders with a way to bypass public exchanges and negotiate custom deals, often at more favorable rates than those available on open markets.
Because OTC trades occur off centralized exchanges, they are not visible in real-time to the public. This means large holders can buy or sell substantial amounts of cryptocurrency without causing immediate price swings or suffering the same slippage costs as regular users.
However, OTC markets can also enable crypto whales to accumulate large positions discreetly, sometimes at prices that are not accessible to everyday traders. Some whales even utilize OTC dark pools, private liquidity venues that offer additional layers of anonymity. These tools, often unavailable to the general public, can provide whales with a strategic edge, allowing them to secure better deals while remaining hidden from the broader market.
8. Spreading Fear
Whales, whether in crypto or traditional finance, often leverage social media and news outlets to influence public sentiment. Their goal is to drive market reactions in their favor. By spreading a certain narrative that a specific event or chain of events is about to happen, whales can cause FUD, FOMO, or even a bear market.
For example, a whale might hint at an impending market crash on a social platform such as X or leak bearish news to an influencer, triggering widespread sell-offs. Once prices drop, the whale can step in and buy assets at a discount, profiting from the fear they’ve generated. This narrative control is especially effective in fast-moving, sentiment-driven, volatile markets such as crypto.
Closing Thoughts
Whale trading is one of the unavoidable aspects of any marketplace, and in the volatile world of cryptocurrency, their impact is even more pronounced. The decentralized and largely unregulated nature of blockchain finance gives large holders freedom to act in ways that wouldn’t be possible in traditional markets. The ability of whales to manipulate prices, influence sentiment, and execute advanced trading strategies creates a landscape where retail investors must tread carefully.
