Buy walls and sell walls refer to the act of attempting to influence market prices by placing a large buy or sell order. This is typically done by “whales” (wealthy investors) who want to ensure that prices do not go below what they deem acceptable.
Buy walls and sell walls can be viewed as signs of a cryptocurrency’s health and the overall market trend. As such, they can be beneficial to traders and potential investors. This article will go over all that you need to know about Buy Walls and Sell Walls so without wasting anymore time, lets get down to the meat of the matter.
What Are Buy Walls and Sell Walls?
When traders with large sums of money wish to influence the price of a certain cryptocurrency, they might erect “buy walls” and “sell walls” around the target price. This can sometimes amount to market manipulation, but the order patterns are sometimes a legitimate side consequence of so-called whales pouring large sums of money into a certain sort of investment.
Trading on cryptocurrency exchanges takes place through an order book, in which buyers indicate their purchasing prices (bid price) and sellers indicate their selling prices (asks price). Essentially, buy walls keep market prices from falling because they generate a huge number of orders at the same price, requiring big sums of money to be completed and handed over.
A buy wall is the consequence of a single large purchase order or the combination of numerous large buy orders placed in the order book of a certain market at the same price. A rich individual, group of merchants, or organization can construct a buy wall.
The order block can have several different effects:
- A buy wall essentially establishes the lower limit for price movement, especially if the cryptocurrency is not widely traded. It takes a significant number of smaller sell orders to exhaust the supply of buy orders at the price set by the buy wall.
- The buy wall may also increase trade volumes since sellers can see there is a lot of demand in that digital coin. Again, this strategy works well for crypto names with little liquidity.
- The same investor(s) may also place a sell wall (see below) at a reasonable distance from the buy wall, giving the impression that the bitcoin market is more active than it is.
A sell wall is a huge sell order(s) issued at any price level that can cause the price to drop dramatically. Anyone, particularly high-net-worth people or whales, can place it in order to manipulate asset prices to their benefit, however others can also assist add to that order.
Because of their massive holdings or units of an asset, these so-called whales can affect pricing. Sell walls can reduce asset values and compel them to trade within a specific range. They function by signaling to other traders that the price cannot move past a certain level without encountering strong resistance.
When huge holders or whales purposely place sell orders below the wall, it is generally done with no intention of buying from other traders at such levels, but rather to bluff others into placing sell orders below the wall, generating downward price movement.
A big sell wall suggests that once a specific price is reached, accessible supply will quickly grow, pushing down both demand and price. Traders then opt not to acquire at that price or sell their asset at a cheaper price, offering shorting chances for whales.
Whales can continually create and remove sell walls on the order book to manipulate prices, and most exchanges include interactive depth charts to show buy and sell walls.
How Buy Walls and Sell Walls Works
In some circumstances, the walls simply arise as a natural result of huge orders being made in illiquid marketplaces. A whale investor who wants to open a significant stake in a minor currency instantly develops a purchase wall. A sale wall arises when a whale is shutting out or lowering their exposure to a single cryptocurrency.
The same impact may be achieved if a large number of smaller investors band together, agree on a certain price for the desired cryptocurrency, and place a large number of buy or sell orders at that level.
They can even emerge from completely human examples of mass psychology. Nice, round figures may instill confidence in transactions of all sizes. You’re more likely to see buy walls at $20 per coin than, say, $22.17. The brain can be funny that way.
Order barriers, however, may also be used to influence pricing. Again, this is more of an issue for smaller and less liquid currencies, but whale investors may be able to set cryptocurrency values precisely where they want them.
This impact may also be aided by automated trading platforms and smart contracts. Deep-pocketed dealers have more clout in a market where coin values are mostly determined by supply and demand.
Pros and Cons of Buy Walls and Sell Walls
To some extent, buy and sell barriers are perfectly healthy components of a well-functioning market. A sturdy wall, whether natural or manufactured, can stabilize the targeted coin and sustain a larger volume of routine trades.
At the same time, they might be risky for inexperienced investors seeking get-rich-quick schemes and sudden moonshots. A purchase wall can give the appearance of significant price support to a failing cryptocurrency, whereas a sell wall might increase selling pressure to a coin in a precarious market position.
That’s just one more reason why new investors should stick to safer and less volatile investments like the stock market before venturing into the dangerous seas of cryptocurrency investing. When they do, it’s still advisable to remain with proven long-term winners while untested micro-coins mature.
How To Identify Buy Walls and Sell Walls
In most circumstances, the number of unfilled orders on both the purchasing and selling sides of any order book should gradually decrease. A buy wall appears as a solid mass of orders on the order book’s purchase side (usually the left-hand side in graphical depictions). A sale wall seems to be a vertical wall on the other side, as one might anticipate.
These patterns are rarely seen in charts for the top cryptocurrencies on the market. It’s best to wait a while and see if the pattern changes over time if you find them attached to smaller names. If the wall does not disappear after a few minutes of normal trading, there could be something fishy going on behind the scenes and you should consider a healthier investment option instead.
Buy walls and sell walls are not necessarily dealbreakers, but they do serve as a useful warning sign for potentially risky cryptocurrencies.
Examples of Buy Walls and Sell Walls
Let’s say you’re interested in Ethereum Classic (CRYPTO:ETC), a smart contract platform that started out as a snapshot of Ethereum’s platform in 2016.
On a typical day in June 2022, Ethereum Classic had a market worth of about $2 billion, a daily trading volume of about $400 million, and a price of about $14.50 per token.
Because of the low trading volume, your preferred trading platform may not have any open orders in its order book. On another cryptocurrency exchange, you may encounter either a purchase or a sell wall – or both at the same moment. This might be due to whales making movements in the Ethereum Classic market, to naturally strong trading interest in this relatively unknown cryptocurrency, or to an ongoing attempt at market manipulation.
In this particular case, it would make sense to see buy walls and sell walls of a modest height at $14 and $15, respectively. Again, round numbers are comfortable.
Conclusion On Buy Walls and Sell Walls
Buy walls and sell walls may have a significant impact on price swings in cryptocurrency and stock markets. Understanding them can help you trade cryptocurrencies like Bitcoin and Ethereum since it helps you to better forecast price swings and create limit orders appropriately. However, understanding the cause behind the Buy Walls and Sell walls is critical, since they can sometimes be a type of market manipulation rather than representing the genuine trade emotion.