How big is the share of large investors in the cryptocurrency market and do they pose a threat to other users?

Decentralization

Cryptocurrencies owe their success primarily to the fact that they are decentralized. Fiat currencies, such as the dollar, ruble or euro, are highly centralized: they are completely dependent on their issuer – the state. Users have no choice whether to trust fiat currencies or not. At best, they can invest their money in the currency of a foreign country, if it seems to them more stable.

Cryptocurrency does not depend on anyone except its users. Its attractiveness and reliability is based on the fact that it is independent of the sometimes dubious decisions of the authorities. But how decentralized is the cryptocurrency market really?

Yes, it is independent of states, but there may be a threat to decentralization from the other side – the concentration of the lion’s share of coins in the hands of a few holders. Such large holders are called “whales” and our task is to understand how large these mammals can grow.

Recently, Coin Kickoff analysts conducted study what share of the market belongs to whales. Whales in their understanding are holders who own 1% or more of the total number of coins in circulation. Such investors play a huge role in determining the value of cryptocurrencies due to the fact that small players are guided by their activity, taking it as an omen of price changes.

Coin Kickoff analysts found that in 36 of the top 50 cryptoassets by capitalization, whales collectively own more than half of the coins, with 13 of them holding more than 90% of the tokens.

whale dominance

The share of whales turned out to be the largest in the Bitfinex UNUS SED LEO (LEO) exchange token – 98.95% of LEO is owned by just two people. The reason for this lies in the special specifics of the token. It was created to cover the shortfall of Bitfinex, and its smart contract is to burn tokens as the exchange redeems them, thus covering its debt.

In second place in this ranking is Huobi BTC (HBTC) with 97.49% of the tokens in the hands of whales, and in third place is Tether Gold (XAUT) with 97.16%.

Notably, of the top 50 crypto assets, almost half – 23 – have 70% of the coins in the possession of large players. Among them stand out Axie Infinity (AXS) with 94.88%, Gemini Dollar (GUSD) with 92.17% and Cronos (CRO) with 91.49%. There is also Curve DAO (CRV) at 82.76%, The Sandbox (SAND) at 78.98% and Polygon (MATIC) at 71.15%. They are followed by Shiba Inu (SHIB) at 68.87%, True USD (TUSD) at 67.77%, and wrapped SETH and WBTC tokens.

AAVE, Chainlink (LINK), Uniswap (UNI) and Maker (MKR) also appear among the 36 crypto assets, most of whose tokens are in the hands of whales.

Bitcoin is the most decentralized — whales own only 1.15% of BTC. This, of course, is due to the specifics of the study, for which a “whale” is the one who owns 1% or more of all coins.

Bitcoin ended up with only one whale – Satoshi Nakamoto, who owns 1.15% of all existing BTC. Moreover, Satoshi never used or moved these coins. And the chances are high that these BTC will never move, as many believe that Satoshi is no longer alive.

As for ETH, whales own 22.25% of the coins, which is much higher than BTC. Also, less than 30% is accounted for by DASH, LTC, USDC and USDT, and less than 40% by DAI and BCH.

Bitcoin is the most decentralized cryptocurrency

The Coin Kickoff study led to two very important conclusions. First, the vast majority of cryptocurrencies (at least among those with the largest capitalization) are dominated by whales. Second: bitcoin is the most decentralized of the cryptocurrencies considered, it is significantly ahead of its competitors in this sense.

This is the only cryptocurrency in which the share of whales is less than 2%. In second place is Dash with 8%. However, Dash is now a project that, judging by individual indicators, is “fading away”, while Bitcoin continues to develop and dominate the market. Moreover, only BTC and DASH performed below 10%, because the third in the ranking is ApeCoin (APE), where the whales already own 11.46%.

It turns out that the concentration of bitcoins in the hands of whales is almost seven times less than that of the second least concentrated cryptocurrency, and almost ten times less than that of the third. With ether, the difference is huge – more than 19 times.

The study refutes the myth of the dominance of whales in the Bitcoin network. It proves the opposite – BTC is a much more decentralized cryptocurrency among all its peers.

Concentration risks

The more coins a whale owns, the more it can influence the market price of a cryptocurrency, for example, by quickly selling a huge amount of tokens. In particular, those who own more than 1% of all existing coins of any cryptocurrency can quite easily have a significant impact on its value.

True, there are cases when whales are both emitters. Then the risks are somewhat lower, because in the mass sale of coins, the whales will first of all harm themselves. But if there are many whales, and they are not among those who manage the coins, the risks are more than real. It has already happened many times that the price of a cryptocurrency fell after massive sales by whales.

Even in cryptocurrencies like ETH, where the whales own less than a quarter of all the coins in total, they can still bring the price down seriously at will.

On the other hand, since the only major whale in the Bitcoin network does not show signs of life, such risks for BTC are much lower. However, we should not forget that there are other, smaller whales that own less than 1% of the coins, and they can influence the price, although to a much lesser extent. It should also not be forgotten that mass sales by small or medium-sized holders can have a similar effect if they are carried out simultaneously.

This material and the information in it does not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.