A sudden drop in the cryptocurrency market is often linked to a tactic called a "whale trap." This strategy is used by major investors, or "whales," who have enough capital to manipulate market trends in their favor. Here’s how they usually carry it out:
1. **Large-Scale Sell-Off**: A whale initiates a massive sell-off, causing widespread panic among smaller investors. As the price sharply declines, retail traders begin selling off their assets to avoid further losses.
2. **Chain Reaction**: As more investors rush to sell, the downward pressure intensifies, causing prices to plummet further. This panic-driven selling creates a snowball effect, pushing the market even lower.
3. **Reaccumulation Phase**: Once the market hits a low point, the whale reenters, purchasing assets at a discounted price. This action helps revive the market’s momentum while allowing the whale to increase their holdings at a bargain.
This tactic preys on emotional reactions, shaking out less experienced traders and enabling the whale to accumulate more assets at lower prices. It’s a common scenario in unregulated and highly volatile markets, especially in the cryptocurrency world, where such manipulation often goes unnoticed.