{"id":14501,"date":"2024-06-19T14:00:00","date_gmt":"2024-06-19T11:00:00","guid":{"rendered":"https:\/\/forklog.com\/en\/a-whale-that-slept-for-100-years-transferred-all-the-worlds-bitcoins-to-ftx-a-critical-look-at-on-chain-analytics\/"},"modified":"2024-06-19T14:00:00","modified_gmt":"2024-06-19T11:00:00","slug":"a-whale-that-slept-for-100-years-transferred-all-the-worlds-bitcoins-to-ftx-a-critical-look-at-on-chain-analytics","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/a-whale-that-slept-for-100-years-transferred-all-the-worlds-bitcoins-to-ftx-a-critical-look-at-on-chain-analytics\/","title":{"rendered":"\u201cA whale that slept for 100 years transferred all the world\u2019s bitcoins to FTX\u201d: a critical look at on-chain analytics"},"content":{"rendered":"<p>The rise of crypto has spawned entire business lines and disciplines. One of the most popular is on-chain data analytics.<\/p>\n<p>This field uses information about the behaviour of users and investors to anticipate price moves. Such analysis is built on, or incorporates, data taken from blockchains.<\/p>\n<p>Despite its convenience for professional traders and casual users alike, it carries many risks. Here is how such data are used to manipulate communities and markets.<\/p>\n<h2 class=\"wp-block-heading\">When on-chain analysis becomes a problem<\/h2>\n<p>Most often, on-chain analysis means monitoring transactions. The premise is that movements of coins and tokens, along with other information extractable from a blockchain, can reveal the motives of users from an investment or speculative standpoint.<\/p>\n<p>The trend took off with the first on-chain indicators. Their boom came in 2016\u20132017, when most of today\u2019s staples appeared, including Hodl Waves, NVT Ratio, MVRV Ratio, the Puell Multiple and Hash Ribbons.<\/p>\n<p>Yet the popularity of on-chain data\u2014and the influx of new observers and participants\u2014can itself become a problem for crypto. Here is why.<\/p>\n<p>As of June 2024, Whale Alert had more than 2.4m followers on X, and its posts can prompt buying or selling of assets. Despite the vast user base, the platform periodically flags transactions as suspicious at its own discretion and spreads inaccurate information.<\/p>\n<p>On April 1 2022 Whale Alert posted that 6,800 BTC had been moved from an address belonging to Mt.Gox to an unknown wallet.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">? ? ? ? ? ? ? ? ? ? 6,800 <a href=\"https:\/\/twitter.com\/hashtag\/BTC?src=hash&#038;ref_src=twsrc%5Etfw\">#BTC<\/a> (318,980,017 USD) transferred from <a href=\"https:\/\/twitter.com\/hashtag\/MtGox?src=hash&#038;ref_src=twsrc%5Etfw\">#MtGox<\/a> Cold Wallet to unknown wallet<a href=\"https:\/\/t.co\/sYczH1c8ho\">https:\/\/t.co\/sYczH1c8ho<\/a><\/p>\n<p>\u2014 Whale Alert (@whale_alert) <a href=\"https:\/\/twitter.com\/whale_alert\/status\/1509956017861312516?ref_src=twsrc%5Etfw\">April 1, 2022<\/a><\/p><\/blockquote>\n<p> <script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Soon <a href=\"https:\/\/cointelegraph.com\/news\/mt-gox-wallet-transfers-6-800-btc-as-ex-ceo-plans-to-redistribute-6b\" target=\"_blank\" rel=\"noopener\" title=\"\">it emerged<\/a> that the transaction had nothing to do with the exchange, but the media had already amplified the \u201cleak\u201d. Disinformation spread fast. It helped that, days earlier, the exchange\u2019s chief, Mark Karpel\u00e8s, had said he planned to redistribute $6bn worth of BTC to creditors. It is hard to count how many users may have made panic trades on the back of this.<\/p>\n<p>Whale Alert often errs during bouts of market stress. In 2020 the service pointed to BTC moving from a Mt.Gox address on the very day BitMEX announced a leadership change. That came a week after America\u2019s authorities charged the firm\u2019s founders.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">95 <a href=\"https:\/\/twitter.com\/hashtag\/BTC?src=hash&#038;ref_src=twsrc%5Etfw\">#BTC<\/a> (1,006,164 USD) transferred from <a href=\"https:\/\/twitter.com\/hashtag\/MtGox?src=hash&#038;ref_src=twsrc%5Etfw\">#MtGox<\/a> Cold Wallet to unknown wallet<\/p>\n<p>Tx: <a href=\"https:\/\/t.co\/GIzKcAHtYe\">https:\/\/t.co\/GIzKcAHtYe<\/a> whale_alert<\/p>\n<p>\u2014 Crypto Bert (@CryptoBert1) <a href=\"https:\/\/twitter.com\/CryptoBert1\/status\/1314099636064444416?ref_src=twsrc%5Etfw\">October 8, 2020<\/a><\/p><\/blockquote>\n<p> <script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>These two episodes are only a small sample of many mistakes. All Mt.Gox addresses had been known to the community for years, yet Whale Alert labelled them at its discretion, later citing mislabelling.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh7-eu.googleusercontent.com\/docsz\/AD_4nXcM54M1Z1Mps7xofD1xG0UNBiz9An8WIAOpEfR6QJ4NqURUPB_7OGeLdN6ZaceXW7k7T73_Hl9alFP6188L55PoSaOxfEV8Rgal5w7fD34gkLkACwLPJRMRY0bwZW8nD1URlvS0rdoFvr8tzsNFyIIDtN2M?key=9e4zjspauSSqx6D-Pc5Bbg\" alt=\"\u00ab\u0421\u043f\u0430\u0432\u0448\u0438\u0439 100 \u043b\u0435\u0442 \u043a\u0438\u0442 \u043f\u0435\u0440\u0435\u0432\u0435\u043b \u0432\u0441\u0435 \u0431\u0438\u0442\u043a\u043e\u0438\u043d\u044b \u043c\u0438\u0440\u0430 \u043d\u0430 FTX\u00bb. \u041a\u0440\u0438\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0432\u0437\u0433\u043b\u044f\u0434 \u043d\u0430 \u043e\u043d\u0447\u0435\u0439\u043d-\u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0443\"\/><figcaption class=\"wp-element-caption\">The page that showed the transfer of 95 BTC from an Mt.Gox wallet. Source: <a href=\"https:\/\/whale-alert.io\/transaction\/bitcoin\/13919f8557960177d3aa21282037b8a0f1acedff3f822d80c2512d25a28f1378\">Whale Alert<\/a>.\u00a0<\/figcaption><\/figure>\n<p>This matters: unreliable data warp the understanding of market conditions and can cause financial and reputational damage.<\/p>\n<p>Quite often such services simply do not know who owns the bitcoins. In December 2018 the leading American exchange Coinbase <a href=\"https:\/\/blog.coinbase.com\/a-behind-the-scenes-look-at-the-biggest-and-quietest-crypto-transfer-on-record-682ff4a6d9e4\" target=\"_blank\" rel=\"noopener\" title=\"\">moved<\/a> 5% of BTC, 8% of ETH and 25% of LTC of the then total supply. No one knew whose assets they were until the exchange said so.<\/p>\n<p>The on-chain analytics market has matured, but the same mistakes persist. And as blockchain data grow more popular, credulous users may internalise these misconceptions and apply them to future trading or investment decisions.<\/p>\n<h2 class=\"wp-block-heading\">The main logical errors in reading transactions<\/h2>\n<p>To understand the basic mistakes in analysis\u2014and in forming opinions based on token movements\u2014you need to know how deposits and withdrawals work at exchanges and other platforms.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh7-eu.googleusercontent.com\/docsz\/AD_4nXeIfole5AAvSC1LJr41qiNA87i20MBkCluAdnR5zapREyad7-T9lF9j0JXxMqhfrFS3trD8BZNw70I4amXM47HH6Vpe69efVa13LdgL_gFhMaQXlM0_ri5tQUgNvC9o8XR0fiJwbCWqdiiVznW3XJJEeLd2?key=9e4zjspauSSqx6D-Pc5Bbg\" alt=\"\u00ab\u0421\u043f\u0430\u0432\u0448\u0438\u0439 100 \u043b\u0435\u0442 \u043a\u0438\u0442 \u043f\u0435\u0440\u0435\u0432\u0435\u043b \u0432\u0441\u0435 \u0431\u0438\u0442\u043a\u043e\u0438\u043d\u044b \u043c\u0438\u0440\u0430 \u043d\u0430 FTX\u00bb. \u041a\u0440\u0438\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0432\u0437\u0433\u043b\u044f\u0434 \u043d\u0430 \u043e\u043d\u0447\u0435\u0439\u043d-\u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0443\"\/><figcaption class=\"wp-element-caption\">Data: ForkLog.<\/figcaption><\/figure>\n<p>As the diagram shows, before funds are moved to an exchange hot or cold wallet, they are credited to a personal address the platform created for the user. Assets land there first and, depending on the platform\u2019s algorithms, can sit for a long time before moving to a known wallet.<\/p>\n<p>Everyone has seen headlines that \u201can unknown whale sent N thousand BTC to exchange X\u201d. This is the first, central mistake in transaction analysis. Services like Whale Alert are usually showing a transaction that an exchange is making between its own addresses\u2014from a user\u2019s deposit address to its hot or cold wallet.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh7-eu.googleusercontent.com\/docsz\/AD_4nXccbnTWSgjt9zRCvKntcyaj9BaN_mB5KKBPR0x5kDAauNIKRoUf1pBMGdhtExF1mXb3TyG3U2k0s5RGmZus_VRL-9V-MZG111axHt0wATW_DGkcaV1zScUOhjEHc1-Hug3NFbeqF76a231Kx0U4LRALrFO0?key=9e4zjspauSSqx6D-Pc5Bbg\" alt=\"\u00ab\u0421\u043f\u0430\u0432\u0448\u0438\u0439 100 \u043b\u0435\u0442 \u043a\u0438\u0442 \u043f\u0435\u0440\u0435\u0432\u0435\u043b \u0432\u0441\u0435 \u0431\u0438\u0442\u043a\u043e\u0438\u043d\u044b \u043c\u0438\u0440\u0430 \u043d\u0430 FTX\u00bb. \u041a\u0440\u0438\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0432\u0437\u0433\u043b\u044f\u0434 \u043d\u0430 \u043e\u043d\u0447\u0435\u0439\u043d-\u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0443\"\/><figcaption class=\"wp-element-caption\">Data: ForkLog.<\/figcaption><\/figure>\n<p>In such cases the assets may have been on the exchange for some time; the user may already have traded or withdrawn them elsewhere. Observers are merely seeing an internal operation in which client deposits are consolidated and sent to another hot wallet\u2014or to cold storage.<\/p>\n<p>A recent example of such posts: 13,728 ETH were moved from an unknown wallet to Coinbase.<\/p>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">? ? 13,728 <a href=\"https:\/\/twitter.com\/hashtag\/ETH?src=hash&#038;ref_src=twsrc%5Etfw\">#ETH<\/a> (47,338,996 USD) transferred from unknown wallet to <a href=\"https:\/\/twitter.com\/hashtag\/Coinbase?src=hash&#038;ref_src=twsrc%5Etfw\">#Coinbase<\/a><a href=\"https:\/\/t.co\/475jGqQ9ln\">https:\/\/t.co\/475jGqQ9ln<\/a><\/p>\n<p>\u2014 Whale Alert (@whale_alert) <a href=\"https:\/\/twitter.com\/whale_alert\/status\/1802990271778415071?ref_src=twsrc%5Etfw\">June 18, 2024<\/a><\/p><\/blockquote>\n<p> <script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>These are often packaged as: \u201cWhales are sending ETH to exchanges to sell.\u201d This is especially common during market stress. Look under the hood of the transactions and the address history, though, and a different picture emerges.<\/p>\n<p>Etherscan <a href=\"https:\/\/etherscan.io\/address\/0x586a065b181b2df24cc762c6bbe75214bca643ab\" target=\"_blank\" rel=\"noopener\" title=\"\">showed<\/a> the address was topped up directly from a Coinbase wallet seven days earlier, and then sent back in a direct transfer. It is therefore highly likely to be a routing address used by the exchange\u2014unrelated to users and not a fresh external deposit.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh7-eu.googleusercontent.com\/docsz\/AD_4nXdz5cte8e-CH6od9ev87CEeAHZFIvR4fOYfYXvXLF6hizbwC8BAtRaLsFcSXsk0exrMeke55wxKQjCzyKpPgOiIHT7YqJHbjm9YyL86MR4rj3VdzxrZviJU93HijGsRaWoRVRzBnWi7zMCWGo8ONMLeyLo?key=9e4zjspauSSqx6D-Pc5Bbg\" alt=\"\u00ab\u0421\u043f\u0430\u0432\u0448\u0438\u0439 100 \u043b\u0435\u0442 \u043a\u0438\u0442 \u043f\u0435\u0440\u0435\u0432\u0435\u043b \u0432\u0441\u0435 \u0431\u0438\u0442\u043a\u043e\u0438\u043d\u044b \u043c\u0438\u0440\u0430 \u043d\u0430 FTX\u00bb. \u041a\u0440\u0438\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0432\u0437\u0433\u043b\u044f\u0434 \u043d\u0430 \u043e\u043d\u0447\u0435\u0439\u043d-\u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0443\"\/><figcaption class=\"wp-element-caption\">Data: Etherscan.<\/figcaption><\/figure>\n<p>Another common error is to ascribe an intention to a transaction. A blockchain does not reveal motives. At best, we are guessing.<\/p>\n<p>In DeFi applications a user\u2019s actions are visible step by step; a simple transfer from one address to another leaves too many possibilities. We cannot see what is happening inside a centralised venue. For the Coinbase example above, possibilities include:<\/p>\n<ul class=\"wp-block-list\">\n<li>the exchange replenishing a hot wallet amid elevated ETH withdrawal demand;<\/li>\n<li>an over-the-counter buy or sale;<\/li>\n<li>a Coinbase Prime client requesting an ETH withdrawal from custody or making a deposit;<\/li>\n<li>a block buy or sale;<\/li>\n<li>routine internal rebalancing between addresses.<\/li>\n<\/ul>\n<h2 class=\"wp-block-heading\">Shaping public opinion<\/h2>\n<p>Such data are hugely popular with retail users. That creates fertile ground for manipulating public opinion for gain.<\/p>\n<p>Even if guesses about a transfer\u2019s purpose are correct, the lack of a full picture can still lead to poor decisions. The information will be used to sway the crowd.<\/p>\n<p>Consider what influencers and analysts cited in autumn 2023 when discussing asset sales by the <a href=\"https:\/\/forklog.com\/en\/news\/legal-and-advisory-fees-in-ftx-bankruptcy-surpass-500-million\">bankrupt<\/a> exchange FTX.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cMore than $1.5bn in SOL, SPL tokens and \u2018wrapped\u2019 bitcoins are moving on the FTX address in Solana. It looks like they are preparing for potential sell-offs. Watch this, especially the ~$200m in bitcoins on Solana,\u201d said Pump House.<\/p>\n<\/blockquote>\n<p>The plan envisaged the exchange being allowed to sell up to $100m of tokens per week, with scope to raise the cap. The assets were worth around $7bn in total.<\/p>\n<p>Now look at the price of bitcoin and SOL after those moves began.<\/p>\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh7-eu.googleusercontent.com\/docsz\/AD_4nXf32NvfwznWYsSNDro7EK0TrlaWU9kWBStTTkYT8cHJtD8qMzQq-vthV9sZZT9QBfQqhfnedIzSQIAhe4v9zork4UosD-Uvdj6XByz7-pcN_-e-sZx__xJ6SwQ5d9YeSV2iyNt4zXOe6c_XIKf_0gia5O_r?key=9e4zjspauSSqx6D-Pc5Bbg\" alt=\"\u00ab\u0421\u043f\u0430\u0432\u0448\u0438\u0439 100 \u043b\u0435\u0442 \u043a\u0438\u0442 \u043f\u0435\u0440\u0435\u0432\u0435\u043b \u0432\u0441\u0435 \u0431\u0438\u0442\u043a\u043e\u0438\u043d\u044b \u043c\u0438\u0440\u0430 \u043d\u0430 FTX\u00bb. \u041a\u0440\u0438\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u0439 \u0432\u0437\u0433\u043b\u044f\u0434 \u043d\u0430 \u043e\u043d\u0447\u0435\u0439\u043d-\u0430\u043d\u0430\u043b\u0438\u0442\u0438\u043a\u0443\"\/><figcaption class=\"wp-element-caption\">Data: <a href=\"https:\/\/www.tradingview.com\/symbols\/SOLBTC\/\">TradingView<\/a>.<\/figcaption><\/figure>\n<p>From early September 2023 the prices of bitcoin and SOL multiplied. The forecasts about FTX sales diverged sharply from what the market did.<\/p>\n<p>Traders and investors swayed by panic\u2014and by taking analysts and influencers at face value\u2014may have chosen poor strategies and lost money.<\/p>\n<p><em>Author \u2014\u00a0Oleg Cash Coin<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The rise of crypto has spawned entire business lines and disciplines. One of the most popular is on-chain data analytics. This field uses information about the behaviour of users and investors to anticipate price moves. Such analysis is built on, or incorporates, data taken from blockchains. Despite its convenience for professional traders and casual users [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":14500,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[1144],"tags":[1156,1268,1596],"class_list":["post-14501","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-longreads","tag-institutional-investors-and-whales","tag-on-chain-analysis","tag-whale-alert"],"aioseo_notices":[],"amp_enabled":true,"views":"23","promo_type":"","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/14501","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=14501"}],"version-history":[{"count":0,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/14501\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/14500"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=14501"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=14501"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=14501"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}