London , UNITED KINGDOM – Just as Captain Ahab will attest, whales can be illusive creatures, dangerous when they attack and hard to hunt, just like Herman Melville’s fictious white whale, Moby Dick and perhaps none more so than the Bitcoin whales which inhabit the cryptocurrency waters. According to data obtained from blockchain research firm Chainalysis, in April, almost a third of the world’s Bitcoin holdings were held in 1,600 Bitcoin addresses. Bitcoin is held in public addresses which are controlled by private keys, the public address of a Bitcoin wallet however, is public information and can be easily searched. Collectively known as “Bitcoin whales,” these strings of hexadecimals held about US$37.5 billion worth of the world’s Bitcoin supply based on April’s prices. That amount has come down somewhat given that in April, Bitcoin was still trading above US$9,000 and is currently hovering around US$6,500, but there’s no escaping that these 1,600 Bitcoin addresses held in excess of 1,000 Bitcoins each. And although it might be easy to assume that these 1,600 addresses were all held by individuals, such an assumption would be overly simplistic, because Bitcoin mining pools would also concentrate Bitcoin in specific Bitcoin wallet addresses. Bitcoin mining pools are commonly shared wallets by Bitcoin miners who contribute their personal computing power or Bitcoin mining rigs to a pool which shares the Bitcoins earned from a successful Bitcoin mining operation.
Yet given the gyrations in the cryptocurrency market in recent weeks, it would be tempting to believe that huge Bitcoin whales were literally waving their fins and causing these massive price swings. A view held by Philip Gradwell, the chief economist at Chainalysis,
“This concentration of wealth means that Bitcoin is at risk of volatility, as the moves of a small number of people will have a large effect.”
According to Chainalysis data, some early Bitcoin investors were able to cash out their holdings late last year as traders poured into Bitcoin when its price rose a spectacular 1,000 percent, peaking at US$20,000 in mid-December. The blockchain analysis firm, which was also instrumental to investigating the hacking of Japanese cryptocurrency exchange Mt. Gox, claims the unprecedented run-up last year of Bitcoin allowed for the transfer of Bitcoin wealth between different groups, a move which is unlikely to be repeated again any time soon. Gradwell adds,
“This was an exceptional transfer of wealth and conditions for it to occur again are unlikely to form again soon.”
Chainalysis estimates that last November, the number of Bitcoin addresses that held on to their Bitcoin holdings for more than a year was roughly three times that held by short-term investors. But the same analysis conducted in April this year showed that the amount held by long-term investors of Bitcoin was now roughly the same as that held by short-term investors. Chainalysis data reveals that over US$30 billion worth of Bitcoin may have been transferred from long-term “hodlers” to short-term punters, with half of this movement having taken place between December last year to April this year. The data may certainly help to explain some of the cryptocurrency price fluctuations that have been experienced in as many weeks. Short-term investors into Bitcoin, the bellwether for all other cryptocurrencies, have tended to be skittish, dropping their digital assets on the back of the slightest sneeze in the market. And the last few weeks have provided plenty of negative news to sneeze at, the most recent of which has been the hacking of a minor South Korean cryptocurrency exchange, Coinrail.
Yet trying to predict the reason for the volatility in Bitcoin prices is a bit like trying to read tea leaves, the same cup of tea can lead to vastly different readings depending on who’s doing the divination. So while it may be tempting to assume that Bitcoin whales are playing the role of “God” in the cryptocean, moving the market with a flip of the tail, the complexity that Bitcoin mining pools with common Bitcoin addresses as well as the decentralized and pseudonymous nature of Bitcoin make such a link tenuous at best. For market observers looking for a reason for the recent tumble in Bitcoin prices, the Chainalysis data, while helpful, may not provide a complete picture of what is happening in the cryptocean. Whales as Captain Ahab will tell you, are notoriously difficult to find.