Whale concentrations in BTC and Tether raising manipulation concerns

Whale concentrations in BTC and Tether raising manipulation concerns

These are anxious times in Bitcoin world. BTC keeps pounding upon upper resistance, occasionally pushing through to new heights, but lately it just seems to lose energy once it crosses the $12,000 threshold. Profit taking is one thing. Consolidating a position is another, but this latest round of bouts with sluggishness is worrisome to even the most ardent BTC followers. Frustration has led to doubt and uncertainty, causing even the most committed “hodler” to think the worst and question every new insight on the street.

The latest avenue for worry comes from two directions, but in one sense it has to do with “Whales”, those holders of immense account values that could do destruction in a second, if and when they tried to liquidate a large position. Whales are not stupid. They understand their market power and their ability to manipulate prices, if that were a valid strategy to pursue. In a recent Bloomberg article, the firm reported the findings of Coin Metrics, a Massachusetts-based crypto market research firm. The insights in this report have everyone talking. Its two main takeaways were:

  1. With regards to the Tether (USDT) stablecoin, “318 addresses hold $1 million or more of the stablecoin, making up for 80% of the world’s total supply.”
  2. With regards to the distribution of funds in SegWitCoin (BTC) account addresses, the ones that can trade quickly without accustomed Bitcoin reconciliation delays, “20,000 wallet addresses held more than $1 million worth of the crypto. That means that only 20% of the BTC market was concentrated in the hands of whales.”

If you do the math, 20% of Bitcoin’s market capitalization is roughly $40 billion, a tidy sum, but in comparison to the funds on deposit in Tether, supposedly a jumping off place or holding position before investing in other cryptos, the multiple is in excess of “10X”. Today, there is a little more than $3.5 billion on deposit in USDT, assuming that its parent company, iFinex, can fund all drawdowns for the Tether trust. There is no guarantee that one can exchange one USDT for one USD, but one important point cited recently by the Wall Street Journal was that “80% of all Bitcoin trading is done in Tether”, i.e., USDT is a major source of liquidity for all cryptos.

Academics have been following these trends and have expressed concern. John Griffin, a finance professor at the University of Texas at Austin and one who has studied price manipulation in the Bitcoin market, noted: “The concentration of Tether suggests that control of Tether is in the hands of a few central players who can swing Bitcoin prices, and have a vested interest in doing so […] It also suggests that many exchange players have a vested interest in keeping the Tether game going.”

Griffin had observed similar patterns in the run up of Bitcoin values in 2017. He added that:

While it’s easy enough to assume that the distribution of BTC amongst thousands of investors protects it against manipulation, that’s not the case. One large buy or sell order from a single USDT holder could crash or pump markets very quickly, manipulating the price to suit their own needs.

While concerns and press reports have focused primarily on price manipulation, one of the items cited by the SEC when it refused to give approval for a BTC ETF, other researchers have reported that similar “market dumping”, if you will, is a major cause of volatility and inconsistent threads across the multitude of unregulated crypto exchanges in the current global network, estimated to be in excess of 200 entities.

Who owns these massive account holdings? Rankings of Bitcoin account addresses by amount are readily available on the Internet. The top 100 accounts hold nearly $30 billion. The top four hold over one half million BTC, valued over $6 billion. According to Coin Metrics co-founder Nic Carter: “Some of the USDT whales include major crypto exchanges, such as Binance and Bitfinex”. We can most likely assume that the same is true for Bitcoin Whales. Many belong to exchanges, as private wallet holdings. For the time being, let’s hope that no one gets spooked and makes a run for the exits.

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