A Few Investors Can Rock the Bitcoin Market at Will
- Caution, about 1,000 people own 40% of the Bitcoin market
- Information sharing are legal, as Bitcoin is a digital currency and not a security.
Currently, Bitcoin is trading 13,769.3848, -2,318.96, or -14.41% at the close: 4:10a GMT, over 20% off its highs of the week ended 8 December.
Recall, that on 12 November someone moved almost 25,000 Bitcoins, worth about $159-M at the time, to an online exchange.
That news soon spread through online forums, with Bitcoin traders arguing about whether it meant the owner was about to sell the volatile digital currency.
Holders of large amounts of Bitcoin have been dubbed “whales”. And they are source of stress, worry and concern for investors.
Whales can send prices due South by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up about 12X YTD.
About 40% of Bitcoin is held by about 1,000 users.
At current prices, each may want to sell about 50% of his/her holdings said 1 analyst Friday.
Should the whales coordinate their moves or preview them to a select few, they all other participants are at their mercy.
Many of the large owners have known one another for years and stuck by Bitcoin through the early days when it was derided, and they could gang up to tank or bolster the market prices.
It is a relatively small community.
A Key reason to believe this is that some kinds of information sharing are legal because Bitcoin is a digital currency and not a security. So, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in mins.
Western regulators have been slow to catch up with cryptocurrency trading, so many of the rules are unclear, except in China and SKorea.
Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices.
The law might also be different for other digital coins.
Depending on the details of how they are structured and how investors expect to make money from them, some may count as currencies, according to the US Securities and Exchange Commission (SEC).
As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price. In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.
The recent rise in its price is difficult to explain because Bitcoin has no intrinsic value.
Launched in Y 2009 with a white paper written under a pseudonym, it’s a form of digital payment maintained by an independent network of computers on the internet‚ using cryptography to verify transactions, the price of 1 Bitcoin then $1.00.
Its most fervent believers say it could displace banks and even traditional money, but it is only worth what someone will trade for it, making it vunerable to big shifts in sentiment.
Civilian investors do not have the understanding or the equipment required to know how to trade Bitcoin.
While they can see the exchange price action, they are ultimately in the dark on the whales’ plans and motives.
There’s no transparency to speak of in the digital currency market
In the securities business, everything that is material must be disclosed. In the virtual currency world, it’s very difficult to know or figure out what is happening in real time even for the professionals.
Civilian investors are at great disadvantages in smaller digital currencies and tokens.
Among the coins people invest in, Bitcoin has the least concentrated ownership. The Top 100 Bitcoin addresses control 17.3% of all the issued currency
With ether, a rival to Bitcoin, the Top 100 addresses control 40% of the supply, and with coins such as Gnosis, Qtum, and Storj, Top holders control more than 90%. Many large owners are part of the teams running these projects.
Some argue this is no different than what happens in more established markets but it is too soon to know.
Remember, it is your money, so your responsibility. So, at this stage, prudence says, “steer clear”.
There will always be a trade.
Have a terrific weekend.