A clandestine group of cryptocurrency investors are sitting in the shadows controlling a third of the market.
Bitcoin ‘whales’ are a network of 1,600 investors holding $37 billion of the digital coins – which is almost a third of the Bitcoin available to trade on the market.
Blockchain research company Chainalysis revealed how Bitcoin wealth is concentrated in the hands of a relatively few wealthy investors.
In a snapshot of the market, the company found 1,600 Bitcoin wallets containing at least 1,000 Bitcoin.
The data also suggests the whales sold another $30 billion of the digital currency to speculative investors in the run up to the Bitcoin price peak of nearly $20,000 in December.
Whales at odds with Bitcoin ethos
“New speculators with accounts connected to the same user or entity with activity within 10% of the of the blockchain have pushed the supply of Bitcoin available for trading up 57% since December 2017,” says the analysis.
“Prices will likely struggle to recover until speculators reduce the supply of coins available for trading by moving funds off exchanges and out of order books or new users enter the market and strengthen demand.
“Between April 2017 and April 2018, Bitcoin held for investment fell from 72% to 50%, suggesting that long-term holders took advantage of December all-time-highs to take profits and transfer Bitcoin to new entrants. At the same time, coins held for speculation rose from 14% to 35%.”
The company also argues that so few investors holding so much Bitcoin is at odds with the philosophy of the movement that demands monetary system independent of control that is open to all.
Feeding frenzy of speculators
“This concentration of wealth means that bitcoin is at risk of volatility, as the moves of a small number of people will have a large effect on the price,” said Philip Gradwell, chief economist at Chainalysis.
Chainalysis also revealed some whales cashed out their entire holdings when the feeding frenzy of speculators entered the cryptocurrency market in December.
“This was an exceptional transfer of wealth and conditions for it to occur again are unlikely to form again soon,” said Mr Gradwell.
The firm and other experts warn that such a high concentration of wealthy investors in an unregulated sector could leave opportunities for market manipulation.