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Bitcoin Volatility May Spike as Coins Consolidate in “Whale” Wallets

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If you’ve been involved in the cryptocurrency community for any time at all, you likely have heard the word “whale” mentioned time and time again. For those not in the loop, a so-called whale is a digital asset holder that controls a large portion (relatively speaking) of a cryptocurrency’s supply.

While whales are largely mysterious creatures, with few knowing who actually is controlling a majority of, say, Bitcoin, analysts fear that these investors may make this market much more volatile in the near future.

Bitcoin Whale

Bitcoin Volatility to Increase, Researchers Warn

Bitcoin has long been a volatile asset. Since its birth some 11 years ago, the cryptocurrency has been subject to the most dramatic of market cycles, surging by thousands of percent to only crash by 90% in the months later, time again and time again.

Though over the past year, volatility has calmed, at least relatively speaking. The cryptocurrency is up a ‘mere’ 90% since the year began, a far cry from the 2,000% gains seen in 2017 or the 85% of crushing defeat seen in the 2018 drawback.

But data implies that volatility has the potential to reappear in this market. Bloomberg recently reported that per analytics firm Coin Metrics, investors holding 1,000 to one million BTC “hold 42.1% of all Bitcoin supply, up from 37.9% during the height of the speculative bubble two years ago.”

This has been corroborated by Flipside Crypto, another industry research boutique that found recently that a mere 3.5% of all BTC addresses are actively trading their Bitcoin “on any given week.”

As to why this is important, John Griffin, a finance professor at the University of Texas at Austin that suggested that Bitcoin’s rally to $20,000 was the byproduct of one entity, said:

“The problem with a few large players holding crypto is that when they sell they can easily push the price down, which makes the market susceptible to rapid swings.”

Su Zhu, the founder of forex and crypto fund Three Arrows Capital, corroborated this expectation of impending volatility. He said to Luke Martin, a CNN-featured cryptocurrency analyst and podcaster, in a recent iteration of the “Coinist Podcast” that he expects for Bitcoin volatility to increase with time, not decrease.

He specifically cited Bitcoin’s elastic demand and the inelastic (fixed) supply cap of 21 million, coupled with the idea that the mentality of traders is to not cash out their coins anymore, but rather to “HODL.” These two trends strongly lend to increasing volatility with time, not otherwise.

So fasten your seatbelts, Bitcoin may be about to encounter a fresh patch of volatility, at long as the “HODL” mindset remains popular.

Hold the Phone: Bloomberg Analyst Expects Otherwise

While Bloomberg is reporting on a potential increase in volatility, an analyst at the firm’s analysis outfit, Bloomberg Intelligence, begs to differ.

Commodities strategist at Bloomberg, Mike McGlone, wrote in a recent note that he expects for Bitcoin’s volatility to increase in 2020, “with the transition from a bear to a bull market apparently over.”

Per commodities news outlet Kitco, which reported on McGlone’s comments, McGlone believes that the introduction and adoption of Bitcoin futures, options, and other derivatives will keep prices caged, likely between $6,000 and $12,000, for the foreseeable future.

Coin Centralization Just Starting

The analysis that a few large traders are controlling the market points to a larger problem: Bitcoin is being centralized in the hands of a few players, namely exchanges. In fact, a report from BitUniverse recently found that nearly 2 million BTC is being held in the wallets of the top exchanges, implying mass centralization of power and wealth.

What’s unfortunately ironic about all of this is that Bitcoin was created to allow people to decentralize themselves from banks and other institutions. Instead, as depicted above, Bitcoin is seemingly being given to centralized companies who now control vast swaths of cryptocurrency wealth.

Sure, there remain millions of BTC held in self-sovereign wallets, though this trend is harrowing, at least to diehard decentralists.



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I am a writer who has been following the cryptocurrency space since 2013. My insights and interviews have been featured in leading publications in the industry such as LongHash, NewsBTC, and Decrypt. When I am not writing, I work as a team member of the EXODUS division of HTC, a Taiwanese electronics company. I own a small amount of Bitcoin. Contact NickC@blockonomi.com

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