Behind The Crypto Sell Wall

Creating sell walls is an age-old tactic for big players in the financial markets, and crypto is no different. Due to their large holdings of a particular asset, so-called “whales” are often able to influence the price of an asset, and the sell wall is one of the tools they may use to do so.

A sell wall is essentially a big limit sell order or a series of sell orders placed at a certain price level on an order book, which lists the buy and sell orders on a trading exchange. A single entity may create a sell wall or a sell wall can be created by the sum of multiple orders placed at the same price.

What Is A Sell Wall?

Whales in any market have a vested interest in managing the price of the assets in their portfolio, especially in a nascent industry with small market caps. Certain whales won’t let a cryptocurrency climb to a certain level until having accumulated as much of said asset as possible. Buy and sell walls are one tool by which a whale — or pod of whales — can manage (read: manipulate) an asset’s price. It is the opposite of a buy wall, which refers to a large buy order or a series of buy orders at a certain price level.

Since you’re probably not a whale, let’s pretend that you are one for the sake of argument. Let’s say you want to buy $100 million worth of bitcoin. You might consider putting in a considerable sell order — ideally at an undervalued price — to scare the market and create a wave of selling. In this instance, you don’t intend to sell, but do so anyway to create panic and dampen the market. You’ve created a sell wall.

Those who don’t see the sell wall event for what it is — market manipulation — and sell in a fit of panic, send the price even lower. In fact, they will probably sell for a lesser price than you, the whale. Once you’ve created the sell wall, those who sell, often sell to you, and you can acquire assets lower than the price at which you sold.

You could buy all of the 100 million bitcoins you wanted, and the price may never increase over the price of your sell order, because you’ve set off a wave of selling. Once you bought all you wanted to buy (or others stop selling to you and other buyers start buying from your wall), you simply cancel the sell order.

The purpose of your sell order is not to sell. It instead ensures that the price of an asset won’t increase, because you buy from people who panic-sold when you sold enough to move the market down. Sell walls are often placed just to scare or cause certain impressions on other traders. This means that those orders are rarely filled in their entirety. In fact, whales often create and remove sell walls multiple times in an attempt to influence the price of an asset. For instance, a sell wall may induce other traders to place their selling orders below the wall, potentially causing a downward movement.

One way to quickly look at buy and sell walls is by looking at the depth chart. These charts are provided by most trading platforms as a graphical representation of the current order book, with all buying and selling orders that are visible within a certain range.

Who Creates A Sell Wall?

In some cases, a rich individual or group of rich individuals might choose to manipulate a stock so it’s price falls. In this case, so-called whales will place a large sell order at the price to prevent more expensive sell orders from executing.

In short, big players enter and exit the market through sell walls and buy walls, respectively. This is how they avoid slippage, which occurs when there is a change in the bid/ask spread. A market order may get executed at a less or more favorable price than initially intended.

When entering the market, their goal is to buy as much of an asset as possible without moving the market up — that is, to keep the average price paid low. The whale might spend 1 million over the counter as a sell wall, then buy the next 10 million from the panicked sellers following the sale of the initial million. They think there is tremendous selling pressure on the market, but it’s a decoy.

The big players entering the market create liquidity by causing the panic. And they buy from panicked people without worrying about raising the price. Had a big player simply made a buy order for the $100 million worth of Bitcoin they wished to purchase, they would have caused a price increase. This activity happens everyday on the stock market, and is less effective in the midst of a bull market run because people will buy through the sell wall. The strategy works better in bearish or sideways markets.

Are Sell Walls Bearish Or Bullish?

A large sell wall can look frightening to the untrained eye, while in reality representing a very bullish indicator. With such a large sell order on the market, anyone looking to sell after the whales liquidate will need to sell at a lower price. The price falls further, reaching a point at which HNWIs feel comfortable buying the desired quantity. Once the sell wall vanishes, the price of the crypto asset starts to increase.

Buy and Sell Walls Spread

Sell walls can serve as a market indicator. If a crypto asset is strong, then the sell walls are smaller and less frequent because traders and investors wish to hold on to the asset and the sell wall strategy is less effective in a bull market.

Sell walls can give traders hints as to when to buy or sell certain assets. For this to work, however, a trader must know if a sell wall is real or artificial. Sell walls occur when an asset is moving sideways, and there are certain indicators of their legitimacy. The sale should be on the books for an extended period of time.

Sell walls are most often employed as part of a short-term cryptocurrency trading strategy, and they help to ensure liquidity. Being able to read sell walls helps traders spot market trends. On many crypto exchanges, you can evaluate the present market depth, including the highest and lowest prices for active orders.

How To Spot Manipulation

In order to recognize a sell wall, you’ll want to understand depth, bids, and asks. A bid is an offer to purchase a coin at a certain price. Asks are requests to sell a coin at a particular price.

Most sell walls are not meant to be completed, but, instead, to show large flow before being cancelled as soon as the market reaches the desired price levels. If you don’t want to be deceived by a sell wall, rely less on order book depth, and more on long term price trends. Don’t focus on large individual trades, but price trends.

The longer-term view of crypto price won’t bog you down in watching minute charts. You run less risk of falling victim to FUD or FOMO. A longer time horizon provides a more general sense of the trend and what is occurring on the market.

Sign up for DXone.com today and access some of the best data tools in crypto



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
DXone Exchange

DXone Exchange

The Cryptocurrency Exchange for Professionals