The weird world of Bitcoin 'whales': The 2,500 people that control 40pc of the market

A video posted on the Twitter page of Michael Saylor, a Bitcoin investor who holds more than $560m (£409m) of the digital coin, ends with a snub for those who have not yet jumped on the cryptocurrency bandwagon: “Have fun staying poor.”

The social media profile of the chief executive of US company Microstrategy reads like that of many big names in Bitcoin.

One says: “Bitcoin is the dominant digital monetary network. The next billion members will pay trillions to join. You might want to join first.”

“Bitcoin is not a ponzi, fad or bubble,” reads another.

Saylor is one of the most visible Bitcoin whales - a term given to individuals or institutions who have lapped up billions of dollars worth of the cryptocurrency.

While Bitcoin may be touted by believers as the democratising future of money, free from central banks and governments, in truth the market is concentrated in the hands of a few hungry whales.

According to industry data, around 13pc of all Bitcoin, some $80bn out of a total of $600bn, sits in the hands of just over 100 individual accounts. The top 40pc of all Bitcoin, roughly $240bn, is held by just under 2,500 known accounts out of roughly 100m overall.

Saylor has so far snapped up more than 18,000 Bitcoin worth hundreds of millions of dollars.

Meanwhile, his company, Microstrategy, once a little known software vendor, has since last summer embarked on a no-holds-barred acquisition of the digital coin worth more than $2.5bn, many of them at prices close to $20,000.

A thin market

Such moves by Bitcoin whales have caused concerns that retail investors, minnows in the pond, can be swallowed whole by a handful of trades that can drive the price of coin up or down.

“The Bitcoin trading market is very thin,” says David Gerard, a cryptocurrency sceptic and author of Attack of the 50 Foot Blockchain. “There is not a lot of available volume to trade. The big players can easily move the price and there are all kinds of trading shenanigans which would not happen on a regulated market.”

Bitcoin surged to nearly $42,000 around January 7, but has since endured a bruising week and is down to around $31,000, although this is still far above its previous highs.

Warning signals over the bubble have been picked up by investors, according to Deutsche Bank. A survey of investors found 90pc believed stock markets were in bubble territory, with Bitcoin top of their concerns.

There has been a recent push of institutional money into cryptocurrencies. Square, the payments company founded by Jack Dorsey, bought $50m of Bitcoin in October (which are now worth around $150m). UK investment fund Ruffer said in December it was buying £550m of Bitcoin.

Of course, this means that digital coin believers argue the price is only on the way up, due to the scarcity of its supply.

'God's asset'

Peter Wall, of cryptocurrency mining company Argo Blockchain, says: “We believe in Bitcoin. It is the reserve asset of today and tomorrow.”

Saylor, on a recent Bloomberg podcast, gives Bitcoin a religious significance. He says: “If God had intended gold as a treasury reserve asset to hold for 100 years he would have made 21 million gold coins and made it impossible to make any more.” Saylor did not respond to a request for comment.

Regulators, however, are not won over. The Financial Conduct Authority warned earlier this month that amateur investors should be prepared to “lose all their money”.

Due to the nature of Bitcoin transactions - they are recorded on a verifiable digital ledger - it is possible to see many of the biggest transactions play out in real time and to identify digital wallets.

The single largest Bitcoin stash holds 1m Bitcoin or $30bn. It is said to be the first Bitcoin wallet and is believed to have been the one used by its creator, Satoshi Nakamoto. It has remained dormant for several years amid speculation its creator is dead.

Other accounts are those of crypto exchanges. A wallet belonging to the Huboi exchange holds $4bn in Bitcoin, for instance.

Some big Bitcoin whales are more bizarre. The Government of Bulgaria is said to hold almost $6bn worth of Bitcoin that was seized in a raid. A mysterious account, thought to be the leftover cryptocurrency from the Silk Road dark web drug market, is worth about $1bn.

But while a number of hedge funds and investment companies have also bought in, Gerard says the presence of these big players should make small holders nervous.

'Any one of them could crash it'

“These big players have lots of Bitcoin and are very active in the market. Any one of them could crash it,” he says.

The final piece of the Bitcoin puzzle on what can cause prices to move are stablecoins. These digital coins are designed to enable massive trades between exchanges or big holders, since such sales cannot be quickly processed by normal banks.

Tether is one such coin. This coin is said to be pegged to the price of the dollar. It has huge daily trading volumes as a source of liquidity between exchanges. It will print hundreds of millions of dollars of its coin every day, it says, to meet demand from exchanges. The whales here are even bigger and more concentrated than in Bitcoin.

Some cryptocurrency users have concerns about these stablecoins. Tether, for instance, is under investigation by the New York Attorney General’s office.

In a private message disclosed in court filings, an executive at Bitfinex, which is linked to Tether, said they feared if their market went offline, Bitcoin could “tank below [$]1k”.

Tether, and fellow defendant the Bitfinex exchange, have rejected any wrongdoing. “We have met all our obligations to the Attorney General’s office [and have] produced 2.5 million pages of material,” Bitfinex general counsel Stuart Hoegner said.

Times have been good to the whales and incoming institutional money. If the tide turns, it will be the big Bitcoin holders driving the trades.

“Bitcoin holders are using their company money to buy Bitcoin,” says Gerard. “They are talking up bitcoin like mad. This is fine for them - as long as the price keeps going up.”