The Issue of Whale Dominance in the Bitcoin MarketJune 20, 2020
In the popular culture and mass media, 2020 is once again – to the total dismay of industry experts and those who have been following the crypto market – redefining the image of bitcoin. This network, thanks to its prominence and size, is yet again the target of opinion and ideas about the entire cryptocurrency field, usually from people that have very little experience or knowledge about digital currency. Presently, as the Q2 of the year slips into Q3, the notion is reviving the bitcoin is digital gold.
Instantly enough, this takes place where a couple of months after many swore off bitcoin and all digital currencies during the March slide of crypto markets. However, now, the news that investors are seeking out cryptocurrency as a hedge against an almost guaranteed wave of inflation is again making the rounds in not just mass media, but also social networks.
Yet, as the process of public awareness moves into the next phase, with all possible rollercoaster events that might await the world until the rest of the year, some are pointing to a new big and flashy problem in the bitcoin ecosystem. This is the presence of whales, or mega-traders and BTC holders who are dictating the market. Like always, this is a complex issue and one that is quickly being overshadowed by inadequate reporting. However, there are also some elements of truth in the mix as well as a potential for a more serious – and real – issue further down the line.
It is odd to think that bitcoin price actually saw a rise of about 30 percent since the end of 2019. This is incredible to conclude, especially in the environment of the COVID-19 coronavirus pandemic and the subsequent shutdowns. In this period, the drop in revenue and profits in practically all industries was more than clear. Instead, the cryptocurrency is seemingly solidifying its base for a new bull run, as the expectation keep climbing along with trading volumes.
It would be easy to conclude that the rise in trade is the direct result of the impact of the coronavirus. However, there is a slightly different perspective to this that might reveal a presence of a completely unrelated but equally or even more important force – a selection of bitcoin whales. It has been revealed that a number of traders professional working on the bitcoin exchanges control most of its liquidity.
These traders account for around 85 percent of the entire USD value of bitcoin that is entering and leaving the exchanges. Opposite of them is the majority of bitcoin buyers who trate the cryptocurrency mostly as a form of digital gold. This means that they trade fiat currencies for it but then hold it for a prolonged period of time – the so-called HODL approach.
2020 Whale Dominance
This year, it has been proven that professional traders are defining the movement of the bitcoin market. They were firmly behind the wheel during the hard fall in price that took part in March with the intensification of the COVID-19 coronavirus pandemic in the US. Also, the volume off of actual transactions remains very low. That is why on average in 2020 the number of transfers per week in the Bitcoin network remains at 39,000. Furthermore the same transfers take place from a small number of digital wallets. This year also has additional repercussions for the network.
The number of transaction in 2020 continues to climb drastically and reach the levels that had not been seen since 2018. This is not connected to the wales themselves, as more and more people are getting an interest in cryptocurrency, spurred on by a climbing demand in any kind of monetary hedge. Analysts are unsure how long this trend will last, but for now on it is more than definitely present. Also the whales in the network or in one way or another using the same developments.
Concentration of Power
Looking from the outside, having a small number of traders who control the vast majority of liquidity might seem like a big issue for the BTC network. However, one might conclude the same thing about any other marketplace in the world. It is very rare to find a setup where a single relatively small entity does not represent the biggest part of market movement. This is also seen in things like esports, retail operations (where one product or service is drastically or performing any other) and any other domains that include any kind of monetary transaction.
This is the raw nature of power concentration. In fact, the entire concept of leveling the playing field in the traditional markets usually includes oversight and regulatory bodies that forcefully tried to stop these concentrations of power. it is an open question how successful they are, and for many, the entire principal is set on faulty foundations.
Bitcoin network, for better or worse, does not possess the possibility of including any kind of regulatory mechanism. More precisely the very basic network concept came out of the idea of doing away with external regulation, and allowing the market to fully and completely correct and influence itself. This scary concept to anyone looking to emulate the traditional markets, but the point of cryptocurrencies and cryptomarkets is that they are not like the traditional ones.
The presence of whales also falls under this category. Also, it is important to note that there is no option of having it both ways. Instead, the crypto investors and traders must accept and even embrace this concentration of power. Otherwise, they will be stuck in a limbo between the crypto market and traditional market, they would fail to get benefits of either. Also, getting any kind of mimicking of the traditional market in the cryptocurrency exchanges is next to impossible because of the hard-coded safeguards against precisely that. So, the traders are in a take it or leave it. Right now, it appears that for most of them currently active in the crypto market, the present setup is working just fine.