On-chain: whales and exchanges
Lesson 29 of 39 in the course “Crypto”. Free, with animations and a quiz.
The blockchain is open to all
Every BTC transfer is recorded on the blockchain, and anyone can look at it. Studying these records is called on-chain analysis. There are no names, only wallet addresses. But big transfers are visible right away. Whales are owners of wallets holding a very large number of coins. Special services label which addresses belong to exchanges.
Where the coins go
In the picture, red arrows mean coins going to an exchange. Green arrows mean coins leaving one. People usually move coins to an exchange to sell or swap them. So a transfer to an exchange hints at a possible sale. A withdrawal from an exchange to a private wallet more often means long-term holding. The key word is "possible": it is a probability, not a fact.
Net flow, worked example
Net flow is how many coins went into exchanges minus how many left. Example for one day: 12,000 BTC in, 15,000 BTC out. 12,000 − 15,000 = −3,000 BTC. A minus means fewer coins are sitting on exchanges, so they are more likely being taken into storage. A plus means more coins on exchanges, and more potential sellers. This is an example, not current data.
Do not judge by one transfer
A whale may simply move coins between its own wallets. Exchanges also often move coins internally. Such a transfer looks scary but means nothing. So look at the net flow: how many coins went into exchanges minus how many left, over a day or a week. And do not let one loud transfer scare you: panic is a bad advisor.
Check yourself
- A whale sent a lot of BTC to an exchange. What could it mean?
Correct answer: A possible sale. Coins usually go to an exchange to be sold. But it is a probability: the transfer may also be a technical reshuffle. - Coins moved from an exchange to a private wallet. What does it more often mean?
Correct answer: Long-term holding. You cannot sell straight from a private wallet; the coins would have to go back to an exchange. So a withdrawal more often means holding. - Is one big transfer enough to draw conclusions?
Correct answer: No, look at the net flow. One transfer may be internal: a whale or an exchange moving its own coins. The net flow over a period shows the real picture.