Bitcoin price manipulation by whales – fact or fiction?

The Bitcoin paradox presents something of a dilemma. On the one hand, Bitcoin sells itself as a financial equaliser. But at the same time, it is one of the most unequally distributed assets in the world.

Kitco News‘ David Lin raised this point in a discussion with GraniteShares‘ director of research, Ryan Giannotto.

Giannotto agreed with Lin’s assessment, calling this one of the fundamental ironies of Bitcoin. Giannotto:

„It is intended to be a financially democratising force, and yet it is so profoundly unequal. It’s a seriously cornered asset class, where only about one 500th of a percent of Bitcoin investors control over 40% of Bitcoins. And that is a serious, serious problem.“

Generally, a Bitcoin whale is defined as an entity holding more than 1,000 BTC. Some expand this definition to include addresses holding 100 or more BTC.

Data from bitinfocharts.com supports Giannotto’s analysis of the situation. They show that 2,419 addresses hold 1,000 or more BTC.

Although these addresses account for only 0.01% of all addresses, they control 43% of the bitcoin supply (Go to Buy Bitcoins with Instant Bank Transfer Guide).

Expanding the analysis to include addresses with BTC > 100 reveals an even greater disparity: 0.05% of addresses hold 62% of Bitcoin. Overall, more and more Bitcoin is being bought.

Bitcoin distribution chart, source: bitinfocharts.com
Market manipulation
However, uneven distribution is a problem that affects all asset classes. Lin cites the example of Elon Musk’s 20% stake in Tesla shares and asks how this is different.

Giannotto believes that the degree of unequal distribution of BTC is very extreme. To illustrate his point, he drew on the example of the Hunt brothers, who held an estimated one-third of the world’s private silver supply.

Between 1979 and 1980, the Hunt brothers were able to drive up the price of silver from $6 to $40. Giannotto:

„Not even the Hunt brothers could have dreamed in their wildest fantasies of how cornered Bitcoin is.“

With such tight control of the BTC supply exercised by so few, he said, the Bitcoin market is at the mercy of the whales.

Bitcoin whales suffer from „bad reputation“
There is no doubt that Bitcoin whales play an important role in the BTC economy.

They can choose to drain liquidity by not participating in market activity. Similarly, the outsized impact of moving large amounts of BTC in a relatively illiquid market contributes to volatility.

Nonetheless, Eric Stone, Flipside’s head of data science, believes that whales generally have a vested interest in protecting their horde. As such, they tend to act in ways that favour long-term growth.

„They will carefully liquidate relatively small amounts of BTC over time rather than risk a supply shock by liquidating larger chunks at a time.“

But despite Stone’s assessment, the psychology of greed and power suggests: enough is never enough.