Bitcoin Whale Power on the Decline, Research Finds
An upsurge in activity among long-dormant Bitcoin wallets in the last quarter of 2018 has weakened the power of so-called whales, increasing the supply of actively traded coins. LongHash spoke with Eric Stone, head of data science at Flipside Crypto, to get his thoughts on the reactivation of large Bitcoin accounts.
Can you summarize the key findings of Flipside Crypto’s research on the activity of long-dormant Bitcoin accounts?
At the moment, 8.59% of non-empty Bitcoin wallets collectively own 99% of all the Bitcoin supply. This is up from 6.7% in November 2017 just prior to the big run-up toward $20,000 and is the highest we’ve seen, exceeding the previous high of 8.56% in January 2016.
This is a sign that dispersion of Bitcoin wealth is gradually improving, though again we have seen this number moving gradually upward over the course of the last year or so, rather than dramatically rising.
Currently, 16.4% of the Bitcoin supply has been stagnant for upwards of two and a half years, 15.6% has not moved between six months and two and a half years, 45.8% has moved in the last one to six months, 8.9% has moved between the last week and one month. These numbers are generally reflective of the pattern we’ve seen since the major shift out of frozen storage in October 2018 and subsequent activity in November.
Do you see any evidence of market manipulation of Bitcoin from institutional investors?
This is an interesting theory, though it seems extreme to me that legitimate financial institutions looking to shed this asset class of its reputation for being easily manipulated would simply turn to that tactic. That aside, one of the metrics we look at in addition to major shifts in supply bands is the change in concentration of Bitcoin supply over time at different levels of ownership.
Notably, since the supply shock we witnessed towards the end of 2018, we have seen what institutions would view as an improvement: more wallets now share control of the top 99% of tokens, as well as the top 95%. The same very small number of the largest wallets still appear to control 80% of all the Bitcoin supply, but there is a promising trend in other parts of the supply.
The interesting thing in that theory is that I agree that institutional traders would want to see fewer whales that are manipulating the market and holding on to their assets for a long time. As we’ve seen from the supply band shocks [Bitcoin whales] do manipulate the market and people follow them. So if one institutional investor sells Bitcoin it does cause a lot of people to follow suit and that causes a drop in price. So I think we do see that pattern on a micro level. But on the flipside of that we don’t necessarily see a dramatic shift in the concentration of wealth in the Bitcoin supply. Over the last year we’ve seen more wallets and less Bitcoin whales. [See chart]
Your research has found that Bitcoin is more dispersed among a wider pool of people. What are your thoughts on this trend?
I will clarify that this is not a dramatic change. You have to go up to 99% of all Bitcoin to really see any substantive shift in that ownership. It is there. But it is not like it has doubled or anything. We’re talking about a few percentage points of improvement... if you want to tie it to whales it would mean that slightly more whales are selling than buying right now.
Over what time period has this taken place?
The most dramatic uptick in the dispersion of wealth happened over the course of the Bitcoin frenzy at the end of 2017. Over the course of 2018 it sort of generally trended either flat or up in terms of the percentage of accounts that claim ownership of a consistent share of Bitcoin.
In terms of the ownership of 99% of Bitcoin, the figure was 6% towards the end of 2017 and it is now closer to 8%, meaning that 8% of active wallets now control 99% of all Bitcoin.
In October and November 2018 we witnessed a spike in activity among long-dormant Bitcoin accounts. What happened here?
There were one or two specific wallets that were responsible for the majority of that shift from frozen to active supply. Notably, a cold storage Binance wallet moved several hundred million dollars worth of Bitcoin to several other wallets. Some of these wallets ended up selling and some did not.
The fact that a wallet that had been sitting there for so long was moved out of cold storage spooked a bunch of investors who watch for that sort of movement. There was almost certainly a cause and effect with that a. And that happened in mid-October.
So it was just the actions of one big wallet holder that spooked investors?
In that instance, the supply shift predicated the price decline. So I would say that it was probably a case of a lot of people noticing that a shift had occurred. We know investors and traders watch the social media accounts of prominent Bitcoin traders and look for similar patterns that I’ve just described.
They will notice if Binance moves a giant wallet that hasn’t been touched in years and they will tweet about it. Everyone that follows that person will know about it as well. We know that social media drives the price of Bitcoin. So that is my theory about why the price declined.
What is the aim of your research?
I think it is fascinating that you can see 100% of the movement and location of every piece of this currency. This is something that you don’t really have for either equities or traditional currencies. This level of insight lets you see that market activity is likely upcoming in a way that we haven’t been able to explore before in other asset classes. We haven’t seen many examples of those able to calculate it and dissect it to the extent that we have.
We know people are catching on that if you notice that particular large holders move their money around [a market move is likely]. We’re trying to make a more systematic analysis of this rather than guessing and tweeting.
Jonathan Joe Morgan, a former Bloomberg News journalist, is a Berlin-based writer.