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What is a Buy Wall?

What is a Buy Wall?

A buy wall is a term used to describe an abnormal accumulation of buy orders in a particular cryptocurrency market. This phenomenon can occur when large investors, such as whale investors, place large orders in an attempt to manipulate the price of a cryptocurrency.

The purpose of a buy wall is to create a temporary supply shortage, which can drive up the price of the cryptocurrency. This helps the trader earn a greater profit by selling the token at a higher price. By setting a buy wall, investors can also protect their investments from price drops.

If the buy wall is secured by a large investor, it can be especially difficult to break. When a buy wall is in place, smaller traders may not be able to access the cryptocurrency at the current market rate and will have to buy the token at a higher price. If a buy wall is in place and the price of the token drops below the set buy wall, then the investor will still be able to purchase the token at a higher price than the current market rate.

Buy walls are common in cryptocurrency markets and can have a significant impact on the prices of certain cryptocurrencies. It is important to be aware of buy walls as they can affect the prices of tokens and may indicate that a large investor is attempting to manipulate the market.

Simplified Example

A buy wall can be compared to a line of people waiting to buy tickets for a popular event, like a concert. Each person in the line represents an order to buy a specific cryptocurrency at a specific price. Just like how a long line of people waiting to buy tickets for a concert can indicate high demand for the event, a tall buy wall in the cryptocurrency market can indicate that there are many orders to buy a particular cryptocurrency at a certain price, which can be a sign of high demand for that coin. However, just like how the line of people waiting to buy concert tickets can be artificially created by a few individuals, a buy wall in the cryptocurrency market can also be artificially created by large investors or traders to manipulate the market.

Examples

Example 1: In centralized cryptocurrency exchanges, trading is done via an order book, where buyers indicate their buying prices (bids) and sellers indicate their selling prices (asks). Essentially, buy walls prevent market prices from dropping because they create a massive amount of orders at the same price which requires large amounts of money to be executed and passed over.

Example 2: Once huge buy orders appear in the order book, other traders tend to place their orders right after the walls. For instance, if a big buy wall for Bitcoin is placed at $5,000.00, other traders that are willing to buy tend to place their order at $5,001 or above. They do so because they believe there is a very small probability of their orders being filled if placed together or behind the wall (at $4,999.99 or less).

Example 3: When a bearish market downtrend is really strong, sellers start executing 'market orders' (selling at bid prices), when this occurs, buy walls can be quickly “eaten up,” having all their orders filled in a matter of seconds.

Example 4: Buy walls are meant to control prices. The existence of buy walls has the effect of driving prices up even before it’s filled because a cryptocurrency’s supply will go down considerably once price hits the buy wall and orders are filled. The volume in the buy wall can drive up prices simply because it’s so large.