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Unpacking The Block: Do Whales Dominate The Bitcoin Network?

If you were born during the bear market, at a time when technicals dictated price, you may be extra sensitive to the idea that “whales” (or large holders of Bitcoin) control the market. 

Only recently, Bloomberg added to such fears by making the explicit claim that “whales continue to own most Bitcoin” and that “the fact remains that there’s nothing widespread about Bitcoin”. 

As the industry continues to mature and practices around on-chain analytics develop, the crypto community will increasingly become less susceptible to these types of FUD-inducing reports and instead build the habit of seeing with their own eyes, rather than through the (potentially) untrained eye of the media. 

In this article, we want to show that there is nothing “factual” about the supposed concentration of wealth and power on the Bitcoin blockchain. 

Who owns Bitcoin? 

The problem is that reports such as the one Bloomberg relies on tend to analyze the distribution of Bitcoin across the network through the lens of addresses. This can lead to misleading statistics.  

Let’s first agree on a few things:

  1. Not all Bitcoin addresses are the same. For example, an exchange address that holds the funds of thousands of users is not the same as an address that holds your personal funds. 
  2. A Bitcoin address does not represent a single person. An address can be shared, or it serve as a proxy wallet for hedging purposes; likewise, a single person could own multiple addresses. 

With this in mind, looking at the distribution across the network, we should remember this would include players such as Grayscale – and other custodians/ fund managers – that hold large amounts of Bitcoin for their clients. 

Likewise, we ought to consider that there are many addresses that contain ‘lost Bitcoin’, meaning these are addresses that are no longer accessible either due to the owner having passed away, lost their password, and so forth. Addresses such as these usually go back quite some years when it was easier to accumulate bigger amounts of Bitcoin and therefore stand out on the ledger. 

Lastly, some wallets are used to collateralize specialized stablecoins such as WrappedBTC, where Bitcoin is locked up to mint WBTC which makes it possible to take Bitcoin into the Ethereum-based DeFi ecosystem. Bitcoin moving in and out of these wallets does not necessarily tell us much about whale-sentiment.

Are whales in charge? 

According to calculations by Glassnode, and taking these specifics into account, Bloomberg’s statement that “2% control 95% of all Bitcoin” is not correct. Instead they come to the conclusion that 2% of network entities control around 71.5% of all Bitcoin, which makes quite a difference. 

Furthermore, as reported by Glassnode, Bitcoin has become more dispersed over the past years with the smaller players (<10 BTC) have increased their holdings by 130% since 2017. Larger players (<100 BTC) have also increased their holdings by 14%. Interestingly, sharks and whales (>500 – >5000 BTC) have been downsizing by approximately -5%.

At the same time, a whole new class of whales in the form of institutional investors are entering the market, and they are undoubtedly on the rise. 

This is generally bullish for Bitcoin. Big purchases at high prices create a new floor, open up new price horizons and, frankly, institutional participation brings more sophistication to the market which might help to reduce volatility.  

Knowledge is key 

Whether or not whales are in charge is difficult to say. Do we know if whales are in charge of gold? US dollar? How about real estate? 

Let’s assume that the wealthy generally wield more power than those without means. Well, knowledge is also power, and part of what makes Bitcoin a unique asset is that its underlying technology allows us to pretty much see anything.

For example, when 28,000 BTC was moved from private wallets to Okex and Gemini, prior to any price significant movement, most people already knew about it. Of course, many sold their Bitcoin to try and front run the sale which led to the crash from $58,000 USD to where we now.

The downside is that such transparency can also be used to manipulate traders. In the end, we don’t know if the 28,000 BTC was actually sold or whether it was just to spook folks into selling their Bitcoin (FYI: It turns out that the fund transfer related to Gemini was actually an internal transfer.) 

We find ourselves at an interesting cross-roads. Retail and high net worth investors have had the unique opportunity to get in on the money, before the ‘smart money’. But now that the institutions have arrived, it will be absolutely crucial not to get caught up in news cycles that might have been designed to shake you out of your position. 

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