Analysis> Is it really reliable to track Whale movements as a trading signal?

This article explores the effectiveness of Whale Alert as a trading signal by analyzing the impact of large deposits in BTC, ETH and SOL on price changes. This article is derived from the Presto Research article and compiled by Odaily Planet. Ethereumswing tradingWhale has closed positionshort order, long ETH reversal again? Whale alerts are popular because large on-chain transactions are often seen as precursors and sell signals for impending token dumping. To evaluate these claims, Presto Research analyzed the price changes after large deposits of BTC, ETH, and SOL to Binance. According to the regression analysis, the R-squared value between the deposit of large trades and the subsequent price change is low (ranging from 0.0017 to 0.0537). Narrowing down the data to deposits from VCs and MM (market makers) slightly increases the R-squared value, but the practical utility of them as trading signals is still limited. The results of the study strongly suggest that Whale's deposit to the exchange lacks predictive power as a reliable trading signal. The on-chain indicator is effective in other ways, such as analyzing Block chain fundamentals, tracking illicit money flows, or interpreting price fluctuations. Only when investors have more realistic expectations of the capabilities and limitations of these indicators will they better serve the industry. One of the main differences between an encryption asset and other assets is the public availability of its transaction records, which are stored on a distributed ledger. The transparency of the Block chain has led to the creation of various tools that take advantage of this unique feature, which are classified as "on-chain data". One such tool is Whale Alert, a service that automates notification of on-chain large encryption transactions. They are popular because large trades are often seen as a precursor to impending dumping and are therefore seen by traders as "sell signals". This report assesses the validity of this generally accepted assumption. After a brief overview of the popular Whale alert services on the market, we will analyze the relationship between large trading deposits and BTC, ETH, and SOL prices. Next, we will present the results of the analysis and give the main conclusions and recommendations. Overview of Whale Alerts Whale Alerts refers to a service that tracks and reports large encryption transactions. These services have emerged with the development of the encryption ecosystem, which also reflects the high recognition of the transparency characteristics of the Block chain by market participants. History As early BTC adopters, miners, and investors (e.g. Satoshi Nakamoto, Winklevoss Twins, F2Pool, Mt. Gox) amassed large amounts of BTC, the term "whale" became popular. Initially, Block chain enthusiasts monitored large transactions through the Block chain browser (such as Blockchain.info) and shared this information on forums such as Bitcointalk or Reddit. These sources are often used to explain the significant fluctuations in the BTC price. During the bull market in 2017, with the increase in the number of Whale trades and large trades, the market urgently needed an automated monitoring solution. In 2018, a European development team launched a tool called "Whale Alert," which tracks large encrypted transactions across multiple blockon-chains in real time and delivers alerts via X, Telegram, and the web. The tool quickly gained traction among market participants and became the preferred service for those looking for actionable trading signals. Source: Whale Alert (@whale_alert) Basic Assumptions Following the success of Whale Alert, many platforms offering similar services have emerged over the years, as shown in the figure below. Although many new platforms have added more features to provide context for alerts, the original Whale Alert still focused on simple, instant notifications and remains the most popular service, as can be seen from its large following on X. A common feature of all these services is that they rely on the assumption that large on-chain transactions (especially exchange deposits) signal impending dumping. Mainstream Whale Alert Service, Source: Whale Alert, Lookonchain, Glassnode, Santiment, X, Presto Research Proponents of the Whale Alert service argue that on-chain asset transfers to the exchange often precede clearing and are therefore valid sell signals. To test this hypothesis, we analyzed the change in the price of digital assets after a large deposit entered the exchange, and the figure below is the key argument for analysis. The assumption is that if a large trading deposit can be used as a reliable trading signal, a clear relationship between the deposit and the corresponding asset price should be observed. Key citations for analysis, source: Presto Research assets, exchange, analysis period, and deposit thresholds Our analysis focuses on the three main encryption assets – BTC, ETH, and SOL – and their USDT prices on Binance between January 1, 2021 and December 27, 2024. This time frame was chosen to align with the duration of operation of WalletAddress, which Binance currently uses for summary deposits. Deposit thresholds are set because they are based on an Exchange profile. Specifically, with the $50 million, $50 million, and $20 million limits set by Whale Alert for BTC, ETH, and SOL Whale, respectively, as Benchmark, we lowered the deposit thresholds to $20 million, $20 million, and $8 million, respectively, which matches Binance's 40% share of global Spotvolume. Entity Categories We also specifically analyzed deposits of known entities and performed the same analysis on a narrower sample of data to check whether deposits of specific types of entities showed a stronger relationship with price movements. These entities were identified by Arkham Intelligence and supplemented by our own investigations, as shown below. Entities with known addresses, credit: Arkham Intelligence, Presto Research Measuring market impact To assess the potential dumping pressure of Whale deposits, we made the following assumptions: After on-chain confirms deposits greater than the threshold, dumping pressure manifests itself within a specific time frame. We analyzed two time periods: one hour and six hours. The maximum drawdown (MDD) over the specified interval is used as an indicator to measure the price impact of the deposit, if any, effectively filtering out noise for that period. Results The analysis results are shown in the following figures BTC Whale Deposit Impact (All): Source: Binance, Dune Analytics, Presto Research BTC Whale Deposit Impact (VC and MM only): Source: Binance, Dune Analytics, Presto Research ETH Whale Deposit Impact (all): Source: Binance, Dune Analytics, Presto R...