Crypto whale tracking on the Hyperliquid blockchain has enabled traders to target whales with prominent leveraged positions in a “democratized” attempt to liquidate them, according to the head of 10x Research.

Hyperliquid, a blockchain network specializing in trading, allows traders to publicly observe what type of positions a whale is holding, and since these positions are leveraged, the market can assess the liquidation levels unless an additional margin is added, Markus Thielen said in a March 17 report.

Source: 10x Research

“This transparency opens the door for coordinated efforts, where groups of traders could intentionally target these stop levels to trigger liquidations,” he said. 

It’s a common belief in the crypto market that whales with substantial holdings can influence the market through their trading tactics, such as stop-loss hunting, to deliberately trigger other traders’ stop-loss orders and liquidate their positions. 

Thielen says the recent actions from traders show this balance of power could be shifting.

“In effect, stop-hunting is being ‘democratized,’ with ad-hoc groups now playing a role once reserved mainly for market-making desks, or treasury teams, at exchanges before tighter regulatory scrutiny,” Thielen added. 

Thielen told Cointelegraph that it’s still “unclear if this type of activity will become widespread onchain, but as always, transparency can cut both ways.” 

Why are traders trying to liquidate whales?

This isn’t the first time smaller traders have attempted to take down larger entities through coordinated trading tactics. 

Thielen says crypto traders trying to liquidate whales have echoes of the GameStop short squeeze, which saw small traders flip the table on Wall Street short-sellers by buying GameStop’s stock, sending it to all-time highs of over $81 to liquid their positions. 

“This reminds me of the dynamics we saw during the GameStop saga in 2020/2021, where aggressive short squeezes drove rapid price spikes,” he said. 

Related: Bybit CEO on ‘brutal’ $4M Hyperliquid loss: Lower leverage as positions grow

“When stop levels get triggered, prices often accelerate in that direction, providing liquidity for others to cover. We’ve seen similar tactics from market makers and exchanges in the crypto space over the years.” 

Hunt is still on for 40x leveraged Bitcoin short-seller

On March 16, a crypto whale known for placing large, highly leveraged positions on Hyperliquid opened a 40x leveraged short position at $84,043 for over 4,442 Bitcoin (BTC), worth over $368 million on March 16, facing liquidation if Bitcoin’s price surpassed $85,592.

The move didn’t go unnoticed, and pseudonymous trader CBB sent out the call on X to gather a team of traders with enough funds to liquidate the whale’s position. 

Source: CBB

Thielen said in the 10x report that on March 16, Bitcoin surged by 2.5% within minutes, partly because of a coordinated effort to liquidate a whale’s short position on Bitcoin perpetual via Hyperliquid.

The whale has since increased their position to $524 million, and at one point, the whale hunters nearly got their wish when the price of Bitcoin hit $84,583.84, according to CoinGecko. 

Source: CRG

However, some speculate the exposed short position could be intentional. 

Hedge fund trader Josh Man said in a March 17 post to X that the whale might be purposefully trying to get liquidated. 

“So this there is a fairly rare and not widely used technique of self-liquidation and this FEELS a little like that,” he said. 

“In such events, the seller is actually creating a bomb designed to go off and create a rally from the liquidation of his own short. One would expect that he has a large offsetting long versus short.” 

Source: Josh Man

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The US Securities and Exchange Commission could change or scrap a rule proposed under the Biden administration that would tighten crypto custody standards for investment advisers, according to the agency’s acting chair, Mark Uyeda.

In prepared remarks to an investment industry conference in San Diego on March 17, Uyeda said the rule proposed in February 2023 had seen commenters express “significant concern” over its “broad scope.”

“Given such concern, there may be significant challenges to proceeding with the original proposal. As such, I have asked the SEC staff to work closely with the crypto task force to consider appropriate alternatives, including its withdrawal,” Uyeda said.

The rule was floated under the Biden administration during Gary Gensler’s tenure leading the regulator. It aimed to expand custody rules for investment advisers to any and all assets held for a client, including crypto, and upped the requirements to protect them.

Source: SEC

This meant that investment advisers would have to custody their clients’ crypto with a qualified custodian. Gensler said at the time that investment advisers “cannot rely on” crypto platforms as qualified custodians due to how they operate.

The proposal caused friction with Uyeda and Commissioner Hester Peirce, along with industry advocacy bodies who claimed the rule was unlawful and dangerous.

“How could an adviser seeking to comply with this rule possibly invest client funds in crypto assets after reading this release?” Uyeda remarked at the time. He did, however, support the proposal despite disagreeing “with a number of provisions.” 

Peirce, who was the sole commissioner of the five to vote against the rule, said at the time that the proposed rule “would expand the reach of the custody requirements to crypto assets while likely shrinking the ranks of qualified crypto custodians.”

Related: Congress repealed the IRS broker rule, but can it regulate DeFi? 

Uyeda’s latest remarks come days after he said on March 10 that he had asked SEC staff “for options on abandoning” part of a proposal pushing for some crypto firms to register with the regulator as exchanges.

The Trump-era SEC has also killed a rule that asked financial firms holding crypto to record them as liabilities on their balance sheets, called SAB 121.

In December, President Donald Trump picked former SEC Commissioner Paul Atkins to take over from Uyeda to chair the agency. This is now a step closer, with a Senate hearing reportedly slated for March 27.

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Offchain Labs, the developers of Ethereum layer-2 network Arbitrum, have announced a partnership with the Arbitrum Foundation to launch a new incubator-style program called Onchain Labs.

According to a March 17 post by Offchain Labs, the new incubator is aimed at rapidly adding to Arbitrum’s existing decentralized application (DApp) offerings with a particular focus on supporting “innovative and experimental” projects. 

Offchain Labs said this support will primarily come in the form of product and go-to-market advice and won’t provide engineering or other operational resources. 

It also added that while it’s possible — there’s no guarantee that its venture capital arm, Tandem, will purchase any of these project tokens in public markets. 

Source: Offchain Labs

Offchain Labs said the continued development of Arbitrum over the past few years has seen it grow to become one of the “most performant ecosystems in the space.” But now, with the launch of Onchain Labs, the focus will shift to building out the network’s application landscape.

“Through Onchain Labs, we’re dedicating resources to support developers looking to rapidly expand the application layer by ideating with them from the ground floor to bring the best user experiences to Arbitrum,” the company said. 

“With Offchain Labs’ support, we’re confident we’ll see industry-leading applications that are uniquely possible on Arbitrum.”

However, it’s not just about building more applications.

The firm has also said it will only support projects that launch fairly. Offchain Labs claimed the industry’s recent trend toward extractive zero-sum launches “stands in stark contrast to the core ethos of crypto,” adding that “as an industry, we can — and must — do better.”

It will seek to counter this trend by only working with teams that commit to equitable launches, which it said was “essential for fostering community alignment. There’s no reason why all participants in an ecosystem can’t succeed together.”

The rise of layer 2s is creating problems for Ethereum

Arbitrum was one of the earliest layer 2s (L2s) on Ethereum, but there’s been an explosion in new L2 networks since Ethereum’s Dencun upgrade last year.

According to L2Beat, there are now over 70 layer 2s and many more on the way. This has created some issues for Ethereum, according to some industry professionals. 

The first is the fracturing of the Ethereum ecosystem, as different DApps run on different layer 2s, which may or may not be interoperable.

“We currently have too many, the more L2s we build, the less interoperability we will have, creating other problems around infrastructure,” Vitali Dervoed, the co-founder and CEO of perpetual exchange Composability Labs, told Cointelegraph in August. 

Related: DigiFT launches Invesco private credit token on Arbitrum

“Developers might have good intentions when building the next super-fast, low-gas-fee, easy-to-use blockchain, but in the long run, it’s counterproductive as it creates a more fragmented ecosystem,” he added. 

Another issue is that lower-cost layer 2s like Base and Arbitrum are eating into Ethereum’s revenue and impacting the layer 1’s market cap. 

It comes on the same day Standard Chartered downgraded its 2025 price target for Ethereum by a whopping 60%, from US$10,000 to just US$4,000, with the bank’s head of digital asset research, Geoff Kendrick, saying, “We expect ETH to continue its structural decline.” 

Kendrick cited the impact of low-cost layer 2s like Base and Arbitrum as one of the key drivers of this decline. 

“Layer 2 blockchains were meant to improve ETH scalability, but we estimate that Base (a key layer 2) has removed USD 50bn from ETH’s market cap.”

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