One of the biggest power struggles in the crypto space is:
Retail Investors 📈 vs. Big Institutions aka Whales 🐳
So, let’s go whale watching and level the playing field by:
Showing you how whales trade ✅
Explaining how you can use this information to profit as a retail investor ✅
📢 The excitement doesn’t end there. We’re also going to take a look at Grayscale’s new DeFi projects and the strong fundamentals underpinning the selected cryptocurrencies 🚀
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Crypto. Bitcoin prices have rallied since 18:00 GMT (see ‘Legacy’ section for more on this). This has provided a nice push in the green 🍀 direction for other coins (which seems fitting for St Patrick’s Day). In exciting DeFi news, Grayscale offers 5 new trusts (also covered in our letter👇). Finally, In crypto exchange land, Coinbase registered 114.9 million shares ahead of its direct Nasdaq listing.
Legacy. All eyes were on the U.S. Federal Reserve's Monetary Policy Statement today 🇺🇸 The Fed projected a rapid jump in U.S. economic growth and inflation this year as the Covid-19 crisis winds down, and repeated its pledge to keep its interest rate near zero. In our Scan the Week section on Monday, we suggested you keep an eye on Bitcoin price at around 18:00 GMT and indeed the statement has led to a price rally 📈 as it has increased the likelihood of higher inflation (which benefits inflation hedge assets such as bitcoin).
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Let’s Go Crypto Whale Watching
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There is a never-ending power struggle between the retail-investing masses and a smaller number of deep-pocketed institutional players (or ‘Whales’) who often seem to have an unfair advantage. A whale is crypto and Wall Street jargon. It just refers to a large investor whose buying (or selling) might make big waves (or impact) in the market 🌊
Eliminating that unfair advantage comes down to knowledge. And so in this article, we’ll dive into how whales trade the crypto market and how you can best leverage this information as a retail investor ✅
Comparing the Retail and Whale Trading Tools:
1️⃣Retail: Limit Orders
A limit order is an order to buy or sell a security at a particular price. 🏷️ Limit orders guarantee your execution price but do not guarantee that you will be filled. You could submit a limit order, but if the market never comes to your price, it may go unfilled. Note, all limit orders are publicly visible in the orderbook. Use limit orders if you want the best price ✅
❌Crypto whales rarely use limit orders. Let’s assume a whale would like to purchase 10K worth of ETH at $1700 ETH/USD. This means he needs 10K ETH to be sold to him at $1700. He could submit a limit order. However since this order is visible to other traders, they will begin placing their orders above $1700 and front run the whale ☹️ When sellers see a whale holding the bid at $1700, they get greedy 🤑 since they know buyers are present, so they raise their ask price. In short, the whale will not be filled at $1700 and will be forced to chase the price up 👎
2️⃣Retail: Market Orders
A market order is an order to buy or sell a security instantly ⏰. Market orders guarantee an order fill but do not guarantee an execution price. When you submit a market order, you will be filled directly from an order in the orderbook. Use market orders if you’re willing to buy at a higher price in exchange for an immediate fill ✅
❌Crypto whales rarely use market orders. A whale could submit a market order for 10K ETH. Chances are, however, that nobody is selling 10K ETH at $1700, which means the whale would be filled only partially at $1700. The rest of his order will be filled at significantly higher prices. 😦This is known as slippage and occurs when there are not enough sell orders to fill a buy order at a certain price 👎
3️⃣Whale: OTC (over-the-counter) Desks
This is the whale weapon of choice. They often work with OTC (over-the-counter) desks. Whales can submit a request to an OTC desk for 10K ETH at $1700. A desk can source big amounts of crypto because they have access to more liquidity. 🔑
How Can Retail Traders Profit From Whale Activity?
Once whales have their crypto, we can analyse data 📊on their positions to get a glimpse of market direction. Let’s discuss 3 metrics in particular:
Funding Rate is a popular tool that shows an imbalance between longs and shorts 💢 A negative funding rate means that shorts pay longs whereas a positive funding rate means longs pay shorts. A high funding rate often precedes a market drop whilst a negative funding rate can be good confluence with your TA to go long.
Exchange Flow data helps us gauge whether whales are accumulating or distributing: if a lot of ETH, for example, is moving onto exchanges, this could signify that whales are looking to sell their coins 💰 If you’re in a long position and notice a big exchange in-flow you may look to have a tighter stop loss and protect your capital in the case of a correction (check out Whale Alert to see these types of transactions in real time and CryptoQuant for more on chain data. Use this information as a supplement to your TA and risk management).
Open Interest is another valuable metric to track what big money is doing 😎 Open interest refers to the total number of outstanding contracts that are yet to be settled. Open interest, like volume, is used to gauge the strength of a trend. Increasing open interest suggests that big money is adding to their position and the current trend is strong. In contrast, decreasing open interest suggests that whales may be closing out positions and the current trend is weakening.
Remember, trading with whales 🐳 rather than against them is how to maximise profit! Looking at this kind of data as a supplement to your TA can help you develop your trading edge.
DEFI NEWS & ANALYSIS
Grayscale Unveils New Crypto Trusts
🎉 Grayscale Investments (the world’s largest digital asset manager) is digging into the world of DeFi, with 5 new trust offerings 🎉 These trusts have become one of the most common ways for institutional investors to gain exposure to cryptocurrencies.
To add some colour 🎨 to the tweet: 3 of the funds will invest individually in the cryptocurrencies Chainlink (LINK), Filecoin (FIL) and Livepeer (LPT), One will hold Basic Attention tokens (BAT) that run on the Ethereum network. The last one will invest in coins of the virtual-reality world known as Decentraland (MANA) 📛
The trusts are the crypto giant’s first since early 2019. CEO Michael Sonnenshein explained that there was a ‘robust process’ of assessing potential investor demand 💼 as well as the integrity of the underlying protocols. ✅
👉 And so, the chosen few, at least according to Grayscale, are underpinned by strong fundamentals. “At any one time, we’re probably maintaining a list of what could be 30...40 products that we’re interested in bringing to market” said the CEO, so we are looking at a strict selection process indeed. 📌 If you want to know exactly what these fundamentals are, Bloomberg explains:
“Basic Attention tokens track users’ time and attention on digital properties, as a way to determine how to distribute advertising money. Chainlink -- whose token is also Ethereum based -- has a technology that essentially delivers price feeds into various decentralized-finance apps. Meanwhile, Filecoin is a data storage protocol in which users pay to store their files, while Livepeer is billed as a decentralized content delivery network. Lastly, the Decentraland Trust will hold MANA tokens, which can be used to buy virtual plots of land in Decentraland”
📈 Prices for LINK and MANA shot up today, on account of the news. At the time of announcement, they rose about 7% and 20% respectively. This is likely underpinned by renewed confidence in the fundamentals 🙏 as well as the chance of these trusts unlocking 🔐 a new breed of deep-pocketed investors wanting to gain exposure to cryptocurrency without taking on extra procedures and risks of owning them directly 🚫
The best traders can hold lots of variables in their head. Lets see if you can do that here.
Koroush AK thinks of a number. He doubles it, adds 9, divides his answer by 3 and finally subtracts 1. He obtains 8. What was Koroush's number?
Scroll down for the answer👇
Why you NEED to Automate Your Finances
Psychology is the cause of many of our failures in markets. Whether it’s taking a trade that goes against our proven system, impulse purchasing items or deviating from our financial plan. ❌
What we need to succeed is consistency.
Automation removes psychology from the equation and guarantees that you consistently stick to your financial plan. ✅
So what can you do to automate your finances?
Enrol in your company's pension plan. 👴 Other than the substantial tax efficiencies, automating your retirement saving allows you to be certain you can live comfortably in the future and take on more risk when you are younger.
Ensure your regular income always gets paid into the same account. 🏦 You will then be able to automate monthly payments to the rest of your financial system.
Pay yourself first. 🏧 Set up automatic and regular transfers of funds into your savings accounts or online investment platforms removing human error from the process.
Set your credit card bills to auto-pilot 💳. Set up a direct debit to pay off your full bill each month ensuring you never accidentally miss a repayment.
Automate your investment strategies 💸 where possible. Whether you are purchasing regular amounts of Bitcoin or an index fund, many platforms allow automation. Use the tools available and your long term investing won’t be hindered by psychology.
The power of automation cannot be underestimated. Not only does it guarantee you stick to your plan but also saves you time on a monthly basis!
If you want more personal finance tips, check out our podcast 🎤 8 Tips To Achieve Financial Freedom.
Gaining 1 Million Followers with Maren Altman
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@marenaltman is a financial astrologer who has gained over 1 million followers across TikTok, Twitter, Instagram and more.
Be deliberate with content creation 📺. Write down your goals and how you are trying to bring value to your audience then make each piece of content with this in mind.
Consistency is king 👑. Once you have gained traction, create a structure and stick to it.
Analyse social media trends. 📊 Track others in your niche and also outside, see what works and then implement your own interpretation.
Different types of content can be successful on different social media platforms. Vary your content type and platform to see what works for you. 😎
Having thick skin is essential. There will always be people who disagree 👎 with you and this will only increase with your audience size.
So to do this we need to work backwards from our answer to our original number.Here is our chain of logic going forward to reach 8.
If we want to get back to our original number we must do the reverse and go backwards.
Holding multiple variables in our heads is something we must do every day to be a profitable trader. Brain training puzzles like this will help you improve your working memory, speed and accuracy during a trade.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.