How to Capture the Whales in Crypto?

[CoinEx]

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1. What is Smart Money

Smart Money can be an institutional/individual investor with a high net worth/strong research capacity. They are either the angel investors of a project or individuals with years of blockchain expertise and a powerful crypto network. These advantages give them access to information about a certain token that’s inaccessible to the average investor. Relying on this information gap, they could trade before retail investors.

Such investors are also known as Smart Money (SMY). Although information gaps also exist in traditional secondary markets, SMY trades in these markets are much harder to capture as transaction data are centralized. Simply put, finding SMY wallets and identifying their behaviors could help retail investors keep track of SMYs and decide whether to follow suit.

As the infrastructure (monitoring software, reminders, and automated execution) of such strategies become more diverse and popular, a growing number of investors are copying the trade decisions of SMYs, which further boosted their market influence. In the short term, retail investors who failed to capture the fund flow of SMYs may have to invest in outstanding crypto projects at higher costs.

2. How to find Smart Money

A simple way to find SMY wallets is to rely on some of the tools out there. A free tool and a paid service are introduced below:

1) PRYSM:

This is a free tool (available at https://beta.prysm.xyz/) you can use to analyze the trades by an address. With PRYSM, once you entered a target address, you can start analyzing its trade status, such as the profit ratio, token holding, purchase/sale, etc. Beginners who haven’t got a watchlist can get started relying on the wallet addresses of certain highly profitable tokens/NFTs prompted on its homepage. You can then see whether their actions can be imitated and build your own watchlist step by step.



2) Nansen:

As a paid service for on-chain data monitoring, Nansen offers more powerful functions and a wider range of statistics compared to PRYSM. On Nansen (available at https://www.nansen.ai), SMY monitoring is just one of the many functions. Different from PRYSM, Nansen has already tagged plenty of addresses and created a SMY Dashboard that allows users to check the overall fund flow of SMYs during different periods. Moreover, Nansen users can also download the statistics for secondary analysis.



3. Analyze the actions of an address

Finding SMYs is the first step, and it’s more important to study their actions and decide whether you can profit from their trades. Some SMYs trade at extremely high frequencies and profit from the winning rate. It’s almost impossible to keep up with these whales without the help of trading tools (e.g. bots).

There are also SMYs that buy tokens for non-trade purposes. For instance, their purchase may be intended as the provision of liquidity for project teams, post-investment management by institutional investors, participation of DAOs, etc. As such, their trades also mean little for investors. If you are targeting secondary market trades, then you’ll need to conduct a full analysis of SMYs’ trades. Let’s look at the following real-world examples.

Three Arrow Capital (3AC) and TRIBE: While monitoring SMY addresses, we noticed some interesting, profitable TRIBE trades by Three Arrow Capital from October to November. Now, let’s take a closer look. First, we’ll need to check out the transfer record of TRIBE in its wallet.



From 11:04 to 17:44 on October 14, two TRIBE purchases (marked in green) were made on Coinbase and Binance. Following a 1-token test transfer, 3AC conducted two actual transfers to its sub-wallet 3AC-SEED. Tracing these movements, we are led to the TRIBE trades of 3AC-SEED.



The above transfer record is particularly interesting. In this table, the rows marked in green indicate the receipt of TRIBE; those marked in yellow are TRIBE staking on Fei protocol, including deposits and withdrawals; the blue ones are the claim of staking revenue; the red marking means the transfer of TRIBE. Based on these facts, we can tell that the 3AC-SEED, after receiving TRIBE from the main account, did not hold on to the asset.

Instead, it deposited TRIBE on Fei protocol for staking to earn interest and continued to reinvest instead of selling whenever it received the interest. All the principal and interest were withdrawn at 11:23 on November 17, and the test transfer was conducted at 11:26. The assets were then transferred to 3AC’s Binance account and an on-chain crypto user. The entire selling process lasted 12 minutes.



In light of the relevant token price, during the 34 days from the opening to the liquidation of its TRIBE position, 3AC’s return was 45%. Generally speaking, although the strategy is replicable, it requires extensive analysis of the address (a token will not be shown on the holding list once it is staked).

In this case, it is best to start with 3AC-SEED because the type of cryptos and their transfer records are simpler. Let’s now examine the similar transfer record of another token held by 3AC-SEED relying on the same approach.

Three Arrow Capital and LQTY: 3AC-SEED received the LQTY tokens from its main address on November 12, and then staked them all on Liquity protocol.



Upon a closer look at the transfer record of LQTY in the 3AC address, we can tell that the tokens were not directly purchased from an exchange. Instead, 3AC received the tokens from the well-known crypto figure Justin Sun and then transferred them to a SMY address and 3AC-SEED. The SMY also staked the LQTY tokens on Liquity protocol. Here, we will not release the specific figures. As such, there are reasons to believe that this is an OTC trade because LQTY is not traded on any of the major CEXes.

https://miro.medium.com/max/700/1*lhTrKDbylMLeM9UDd-EriQ.png

Although we have no idea what the exact costs are because it is an OTC trade, our estimate (based on the token price that day) is $12.42. What’s even more fascinating is that, like the previous TRIBE deal, after 3AC built up its position, the token price first went down — LQTY is now traded at $10.95, which is probably lower than 3AC’s costs.



We hope the above analysis on capturing SMY could be helpful. Also, the content may not be relied on as investment advice.