A "whale trap" is a sophisticated market manipulation strategy employed by large cryptocurrency holders, known as "whales." Here’s how it typically unfolds:
1. Inducing Panic through Massive Sell-Offs: Whales initiate the strategy by offloading a significant amount of cryptocurrency, causing a sharp decline in its price. This sudden drop triggers panic among smaller investors, who then start selling their assets out of fear of further depreciation.
2. Reacquisition at Depressed Prices: With the market in turmoil and prices plummeting, whales capitalize on the situation by buying back the cryptocurrency at much lower prices. This tactic allows them to amass more of the asset at a bargain.
3. Market Stabilization and Potential Gains: Once the whales have accumulated enough cryptocurrency, the market often stabilizes or even experiences a price rebound. This recovery phase can lead to substantial profits for the whales.
This strategy exploits the psychological vulnerabilities of smaller investors and the inherent volatility of the cryptocurrency market, enabling whales to bolster their holdings and exert significant market influence.