Bitcoin is in an exciting place at the moment. The cryptocurrency has risen in value and appears to be continuing its upward trend. There are arguments about its real value (Something is only worth what someone else is willing to pay for it, and Bitcoin has no intrinsic value beyond what others place as its value) and it is mostly something created by a person who wrote a white paper under a pseudonym. In the midst of the Bitcoin boom (Or bubble) sit 1000 people who own 40 percent of the Bitcoins in the world.
The power of a whale
For these people known as Bitcoin whales, they have the power to raise and drop the Bitcoin market. Other markets have laws and regulations to stop collusion, insider trading and the like but cryptocurrency has none of that. The whales of Bitcoin are said to contact each other, to make plans and to let each other know of their ideas. It is said they collude together to make money.
“There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it is challenging to figure out what’s going on.”
What it means for small investors
The problem for small-time investors is that their investments come down to the decisions of these 1000 people. If they all decide to sell, then the value of Bitcoin goes down. If the whales buy more Bitcoin, there are fewer Bitcoins for others to own. Moreover, one of the facets built into Bitcoin is that it is limited – At some point in time, no more Bitcoins will be able to be mined, and we could see inequality in the cryptocurrency market.
“As in any asset class, large individual holders and large institutional holders can and do collude to manipulate the price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”
While Bitcoin is anonymous, there are ways to figure out who is making the transaction. The coded addresses are freely available for anyone to look at, and if you have the right knowledge from working with cryptocurrency, it is possible to figure out who’s making what moves. The problem is, the average investor has no idea about what’s going on in the background. As they are celebrating their investments going up, they are unaware of what could happen, how their investments are at the whim of about 1000 people at the top of the chain.