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What does concentration of bitcoin holdings mean for retail investors

  • The global crypto market has experienced massive losses in the last 2 days.

  • The prices of Bitcoin, Ethereum & Solana drops after whales' heavy dumping.

  • Whales took control of crypto market from retail investors.

09-Nov-2022 Pankaj Gupta
What does concentration of bitcoin holdings mean for retail investors

bitcoin increasing popularity hasn't impacted any of its fundamental

 attributes in the past years. Its ownership still remains concentrated in just a few hands.

A recent report states that "2% of accounts hold 95% of the total Bitcoin supply." A similar report reveals the distribution of BTC among addresses. Others have reported similar statistics indicating a massive concentration of wealth in the Bitcoin network.

So, what does that mean to a retail investor? To understand this we will first understand how whales manipulate the crypto market and later we will discuss what happens to retail investors when the control shifts from the investors to the whales.

How Whales Manipulate The Crypto Market ?

Whales are entities—individuals, institutions, and exchanges—that own large cryptocurrency tokens. In the past few years, crypto whales are becoming increasingly common in the cryptocurrency industry, particularly when it comes to Bitcoin.

As whales hold significant amount of crypto tokens, they have the power to manipulate the market. Whales primarily control cryptocurrency using two methods:

They create a “sell wall” effect

Sometimes, a whale places a large order to sell a huge proportion of their crypto tokens. They maintain a lower price than other sell orders. This creates volatility, which leads to a general decrease in the prices of crypto assets.

This further triggers a chain reaction in which individuals fear and start selling their tokens at a lower price. As a result, whales get to purchase more coins at a lower cost, gaining more holding power.

They can profit from people's fear of missing out (FOMO)

In contrast to the "sell wall" effect, whales often artificially boost token prices by placing massive buy orders. They create a demand for crypto tokens, leading others to increase their offers. 

As a result, they attract the attention of other investors who are concerned about missing out on a great, profitable offer. Investors believe that because the token demand has increased, they should get a piece of it as well. This allows whales to profitably sell some of their tokens.

So, what happens to retail investors when the control shifts from the investors to the whales?

Current market catastrophe is the perfect example of what happens when power shifts from retail investors to whales. As experienced in the past 2 days, the broader crypto market witnessed dramatic losses because of whales activities.

This sudden transfer of power from the retail investors to whales leads to a market crash or sometimes affects the prices of the crypto tokens. As a result, whales again get an opportunity to increase their holdings and purchase large amount of tokens at much lower prices. As a reflection, retail investors suffer heavy losses.

What are your thoughts regarding this matter? Share your thoughts in the comment box below.

Read also: What is SolidityScan? Understanding Automated Smart Contract Audits

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