Why Do Cryptocurrencies Like Bitcoin Have Buy and Sell Walls?

It goes without saying that the more of a specific cryptocurrency you hold, the more you are affected by changes in the price of that cryptocurrency. For that reason, holders of significant amounts of Bitcoin, Ethereum, Ripple (or any given cryptocurrency), also known as "whales," have it in their best interest to control the prices of that currency to the best of their ability. It is not in a whale's best interest, for example, to allow a currency to climb in price above a particular level until they have accumulated as much of that currency as possible. For this reason, whales often engage in the creation of buy and sell walls in order to attempt to manipulate the price of a currency.

What are Buy and Sell Walls?

The concept of a buy wall or a sell wall is dependent upon the way that many cryptocurrency transactions are facilitated. In many cases, transactions are made via an order book, whereby a buyer indicates a particular price at which he or she would like to buy a given number of units of the currency. This can be done as-is, which is to say at the price that the currency trades at for the time the transaction is initiated. On the other hand, it can be stipulated for a future time: for example, if a currency trades at $10 and I want to buy 10 units for $9, I may be able to place an order that will be activated once the price reaches $9 and I can be matched with a willing seller.

A whale can come in and put a wall in place by initiating a large order. In the example above, if a whale does not want the price of the currency to drop below $10, he or she can place an order for a large number of units (say 10,000) at $10. In order for the price of the currency to drop below $10, the large order must be completed, meaning that sellers have to pile on a total of 10,000 units for $10 first. This effectively blocks the price from dropping.

Buy and Sell Walls Spread

According to a report by the Merkle, buy and sell walls are not isolated to a single trader. When a large buy or sell order appears, it is more likely that other investors will place their orders for the same price point. Because exchanges usually don't create buy and sell walls on their own, this means of manipulation of prices usually comes from investors themselves.

Is there a reason for a spontaneous appearance of a large buy or sell order except to manipulate the price of the currency in question? Some have argued that sell walls can be seen as an indication of high liquidity, suggesting that there are many units of currency available to purchase.