A sudden plunge in the cryptocurrency market often points to a phenomenon known as a "whale trap." This tactic is employed by influential investors, or “whales,” who hold enough capital to sway market dynamics in their favor.
Here's how they typically execute this strategy:
1. Massive Sell-Off: A whale triggers a significant sell-off, which causes widespread alarm among smaller investors. Seeing the price drop sharply, retail traders begin offloading their assets, fearing further losses.
2. Ripple Effect: As more investors rush to sell, the downward pressure intensifies, leading to a steep decline in prices. This panic-induced selling creates a snowball effect, driving the market even lower.
3. Reaccumulation: Once the market has bottomed out and prices are sufficiently low, the whale steps back in, buying assets at a discount. This move restores the market’s momentum and allows them to increase their holdings.
This tactic is designed to capitalize on emotional reactions, shaking out less experienced traders while enabling the whale to acquire more assets at bargain prices. It’s a familiar pattern in unregulated and highly volatile markets, particularly in the cryptocurrency space, where such manipulation often goes unchecked.