1. Cost Basis
01Definition
Cost basis is approximately how much a wallet paid for its tokens.
02Why it matters
A wallet holding $20,000 may have spent $18,000 or only $500. Their incentive to sell is very different.
03What to check
- Initial purchase amount
- Average entry
- Current position value
- Amount already sold
- Remaining unrealized profit
04Healthy / Dangerous
Healthy
Separate observed purchases from transfers and missing history.
Dangerous
A current holding value is mistaken for how much the wallet paid.
05Beginner mistake
Judging risk only from current wallet value.
06Takeaway
Cheap inventory creates powerful potential sell pressure.
2. Realized vs Unrealized P&L
01Definition
Realized profit has already been taken. Unrealized profit still sits in the remaining position.
02Why it matters
A wallet that has recovered its original capital can behave very differently from one still risking principal.
03What to check
- Total amount invested
- Total amount sold
- Remaining position
- Profit already locked in
04Healthy / Dangerous
Healthy
Recorded buys, sells, fees, and remaining inventory reconcile.
Dangerous
A remaining balance conceals that most capital has already been recovered.
05Beginner mistake
Assuming a wallet still holding tokens is still fully committed.
06Takeaway
A holder may already be playing entirely with profit.
3. Accumulation
01Definition
Accumulation happens when wallets steadily acquire supply.
02Why it matters
Persistent accumulation can reduce available sell supply and strengthen a base.
03What to check
- Repeated buys
- Wallet balance growth
- Dip absorption
- Number of independent accumulating wallets
- Whether sellers are shrinking
04Healthy / Dangerous
Healthy
Repeated purchases and balance increases support the interpretation.
Dangerous
Transfers or one support buyer create the appearance of broad accumulation.
05Beginner mistake
Calling every sideways chart accumulation.
06Takeaway
Accumulation means supply is actually being absorbed.
Compare buying and selling over time in the returned sample. Net buy value alone does not prove wallet accumulation.
4. Distribution
01Definition
Distribution is the gradual selling of inventory into incoming demand.
02Why it matters
Price can remain strong while major holders quietly reduce exposure.
03What to check
- Large-wallet balances declining
- Transfers into fresh wallets
- Selling into green candles
- Strong volume with weak price progress
- Concentration changes
04Healthy / Dangerous
Healthy
Inventory reductions are traced and buyers continue absorbing sales.
Dangerous
Related wallets steadily unload while price and promotional activity stay strong.
05Beginner mistake
Waiting for a giant red candle before recognizing distribution.
06Takeaway
Distribution can happen while the chart still looks strong.
Look for repeated sell activity and surrounding buy flow. Establishing which holders are distributing requires external wallet history.
5. Supply Absorption
01Definition
Absorption occurs when buyers repeatedly take available sell supply without allowing price to collapse.
02Why it matters
It helps show whether sellers are being cleared out.
03What to check
- Repeated sells near the same price
- Price recovery after sells
- Shrinking seller size
- Strong bids or repeated buys
- Whether the same buyer is doing all the absorbing
04Healthy / Dangerous
Healthy
Repeated selling meets continuing buying from varied participants.
Dangerous
One wallet supports price and disappears when selling intensifies.
05Beginner mistake
Confusing one large support buy with broad absorption.
06Takeaway
Healthy absorption survives repeated selling.
Compare repeated sells, subsequent buys, and price behavior in the observed window. This cannot establish buyer independence.
6. Organic Buying
01Definition
Organic buying comes from independent market participants rather than one coordinated cluster.
02Why it matters
A move is generally more durable when demand broadens.
03What to check
- Number of unique buyers
- Funding independence
- Holder growth
- Distribution across wallets
- Volume after major wallets stop buying
04Healthy / Dangerous
Healthy
Evidence suggests varied participants and activity persists without one cluster.
Dangerous
Many buy transactions come from the same coordinated source.
05Beginner mistake
Treating all buy transactions as separate demand.
06Takeaway
Durability improves when buying spreads across independent participants.
Inspect observed buys and transaction senders as research leads. Senders can be routers; this view does not verify independent owners.
7. Paper Hands
01Definition
Paper hands are short-term holders that quickly sell when price moves against them or when small profit appears.
02Why it matters
They create repeated supply during early price discovery.
03What to check
- Short holding times
- Repeated small sells
- Sell clusters after minor dips
- Whether weak holders are gradually being cleared
04Healthy / Dangerous
Healthy
Describe observed holding time and sales without guessing motivation.
Dangerous
Repeated short-term exits exceed incoming demand.
05Beginner mistake
Assuming every early seller is bearish.
06Takeaway
Weak supply can be cleared before a stronger base forms.
8. Conviction Holders
01Definition
Conviction holders tolerate larger fluctuations and hold through normal volatility.
02Why it matters
Stable holders can reduce immediate sell pressure.
03What to check
- Holding duration
- Whether balances remain stable
- Whether they add on weakness
- Whether they previously sold large portions
04Healthy / Dangerous
Healthy
Balances and holding history are examined alongside past sales.
Dangerous
A stable balance is assumed to prove conviction despite transfers or prior profit-taking.
05Beginner mistake
Assuming long holding automatically means strong conviction.
06Takeaway
Conviction is behavior over time, not a wallet label.
Level 4 Checklist
For important wallets, ask:
- What did they pay?
- How much profit have they already realized?
- Are they adding or reducing?
- Is supply being absorbed?
- Is new buying independent?
- Are weak holders being replaced by stronger ones?