Traders are increasingly checking on-concatenation data to "predict" both the short-term and long-term price trend of Bitcoin (BTC) using such platforms as CryptoQuant, Glassnode and WhaleAlert.

Particularly, data points such every bit Bitcoin substitution inflows and outflows and stablecoin inflows are actively used past traders to anticipate where BTC may go adjacent.

However, this type of data should be taken with a grain of salt, every bit large holders also realize that this data is being increasingly used by many individuals in their trading strategies. Hence, high-net-worth individuals or whales can dispense this information to tilt the marketplace to their reward — merely how?

Bitcoin on-chain data can be used for "psyops"

When large amounts of Bitcoin are deposited into an commutation, information technology typically signals that a whale or a high-net-worth investor is planning to sell BTC, at least in theory.

Bitcoin Gemini inflow. Source: CryptoQuant

Investors who hold a lot of Bitcoin usually leave them in noncustodial, or self-hosted, wallets for privacy and security reasons.

Hence, when these holdings hitting exchanges, it makes it seem like whales are nearly to put massive selling pressure on the market.

However, since whales know that investors can track deposits through such on-concatenation data tracking platforms, this opens the door to a fakeout state of affairs.

In technical analysis, a "fakeout" is a term used to refer to a situation in which a trader enters a position anticipating a hereafter transaction signal or price movement, only the indicate or motility never develops, and the nugget moves in the opposite direction.

For instance, whales could eolith big amounts of BTC into various exchanges, making information technology seem similar they are selling a lot of BTC, causing fear in the market to bulldoze BTC down.

In reality, whales might not be selling the BTC deposited into exchanges at all. Instead, they may use this fakeout situation to purchase the nugget at a lower toll, for instance.

Well-known pseudonymous trader Cantering Clark explained:

"Fair to say that on-chain data and shuffling of Bitcoin from wallets to exchanges and the other manner around is an abused ploy now. Do you think a huge thespian is going to brand it known in such an open up way that they plan to sell? I guess anybody even so falls for the quarter trick?"

Ki Young Ju, CEO of CryptoQuant, raised a similar bespeak regarding what he calls "psyops" — psychological operations — with on-chain data.

Ju noted that whales may deposit BTC to exchanges in society to shift market place sentiment from greed to fear.

The negative market sentiment lonely could exist sufficient to drive the price down, which may also atomic number 82 to cascading liquidations if the futures market place is overcrowded. Ju said:

"Speculative guess, simply whales might deposit a large amount of BTC into exchanges to make people scared as a lot of people follow whale alerts."

For instance, Gemini reportedly saw large BTC deposits before Bitcoin dropped on March xv to as depression equally $54,500.

At the fourth dimension, Ju emphasized that while it could exist sell orders, it also could exist psyops to lead the market into thinking that selling pressure is coming. He explained:

"Perhaps it's 1 of the three: ane. Psyops 2. Gemini running a private brokerage service, executing sell orders to other exchanges. iii. Some brokerage service uses Gemini Custody, executing sell orders to other exchanges."

According to Philip Swift, an analyst and co-founder of Decentrader:

"It tin be dangerous for traders to put too much weight on the importance of transaction movements betwixt wallets on the Bitcoin blockchain. Every bit we have seen today, in that location is oftentimes confusion effectually who actually owns specific wallets."

Swift further explained that "at that place is clearly an opportunity for 'pysops', where big players trick avid wallet watchers into thinking that funds are existence moved ahead of beingness sold on the marketplace."

Regarding these wallet transfers, Swift said:

"That is not the intention, the intention is simply to trick people into thinking the Bitcoin are about to be sold. It is important to recollect that large players have many other ways to buy or sell $BTC such every bit OTC, unwinding futures positions, etc. They don't take to always move their funds on-concatenation before buying or selling."

Pretty accurate, but no silver bullet

Nevertheless, Bitcoin deposits into exchanges take historically been a fairly accurate predictor of the direction BTC volition become.

Bitcoin exchange netflow. Source: CryptoQuant

For example, in the by iii weeks lonely, two major spikes in BTC exchange inflow marked the local superlative on Feb. 22 and March xv.

Therefore, many on-chain metrics, including BTC transfers to and from exchanges, have shown to be very useful in anticipating BTC price action.

Merely traders should also exist aware that this information is open to anybody and thus cannot be considered the silver bullet of metrics. Equally its popularity rises, it tin be gamed by whales, the media, and other influential entities. This can ultimately mislead traders and shift sentiment to give a imitation flick of market place conditions, particularly in the brusque term.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own inquiry when making a decision.