Let’s do an interesting thought experiment: What if just 1% of Bitcoin holders ended up owning 99% of the total supply? Would Bitcoin still be decentralized, or would it lose its core essence?
Increasingly, we currently see large investors, often called “whales,” buying up substantial amounts of BTC, effectively taking them out of circulation. At the moment, less than 2% of all wallets hold the majority of all bitcoins in circulation.
Large Bitcoin Investors Are Accumulating More BTC
Back in 2009, Satoshi Nakamoto introduced Bitcoin to the world. Satoshi himself mined 1.1 million BTC, becoming the largest holder so far. Initially, miners were rewarded 50 BTC per block for processing transactions, but today, that reward has dwindled to just 3.125 BTC per block.
Mining was much more lucrative in Bitcoin’s early days compared to now, making it easier to accumulate large amounts. Today, out of the 21 million BTC that will ever exist, 19.71 million BTC are already in circulation.
A Small Percentage of Wallets Hold Most Bitcoins
As you can see in the above chart, 1.86% of all wallets currently hold 90% of the total BTC. These large accumulations are by whales, which can be institutional investors, large companies, or individual investors. You can think of entities like MicroStrategy, and since January of this year the Bitcoin ETFs issued by asset managers like Blackrock, Fidelity and others. The concentration of BTC in a few hands could raise concerns among the crypto community about Bitcoin’s decentralization.
Bitcoin Becoming More Centralized
Satoshi Nakamoto’s original whitepaper described Bitcoin as a peer-to-peer network, free from the control of banks, governments, or large institutions. Yet, the current reality shows a growing concentration of BTC ownership.
There are over 46 million BTC addresses with at least one dollar’s worth of Bitcoin. The 104 largest addresses alone hold nearly 2.5 million BTC, about 15.98% of all circulating BTC. And these large wallets keep buying more. (It has to be noted that these large wallets as considered in above chart, include those of centralized cryptocurrency exchanges, such as Binance, Crypto.com, and Kraken.)
Should We Be Concerned?
To maintain Bitcoin’s decentralized nature, it’s crucial that no single entity or group of entities dominates the market. Whales could have the power to manipulate prices, thereby undermining Bitcoin’s reliability and decentralization. Right now, Bitcoin is still considered decentralized, but the continuous accumulation by whales might challenge this status in the future.
So, what does this mean for us? If you’re thinking about buying Bitcoin or are already a holder, it’s essential to stay informed about these dynamics. Understanding who holds the power in the Bitcoin ecosystem can help you make better investment decisions and anticipate potential market changes. A good example would be to keep watching the in- and out-flows of the Bitcoin ETFs, or in other words, the number of Bitcoin these asset managers buy or sell each day in order to back up their products.
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