A sudden drop 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 influence market dynamics in their favor. Here’s how they typically execute this strategy:

1. Mass selloff: A whale triggers a significant selloff, which causes widespread alarm among smaller investors. Seeing the price drop dramatically, retail traders begin to unload their assets, fearing further losses.

2. Cascade effect: As more investors rush to sell, downward pressure intensifies, leading to a sharp 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 low enough, the whale returns, buying assets at a discount. This move restores momentum to the market and allows them to increase their holdings. This tactic is designed to capitalize on emotional reactions, shaking off less experienced traders while allowing the whale to acquire more assets at bargain prices. It is a familiar pattern in unregulated and highly volatile markets, particularly in the cryptocurrency space, where such manipulation often goes unchecked.

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