In November, a person moved nearly 25,000 bitcoins, worth about $159 million at the time, to an internet exchange. The information shortly rippled through internet forums, with bitcoin traders arguing about whether it intended that the owner was going to market the electronic money.
— David Shares (@DavidShares) March 7, 2018
Holders of considerable quantities of bitcoin are often called whales. And they are becoming a worry for investors. They can send prices plummeting by promoting some of their holdings. And those earnings are somewhat more probable now the cryptocurrency is up nearly twelvefold by the beginning of the year.
What’s more, the whales can coordinate their moves or preview them to a select few. A number of the big owners had known one another for decades and stuck with bitcoin through the ancient days when it was derided, and they can potentially ring together to tank or prop up the marketplace.
One reason to consider this a real possibility: At least some sorts of data sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Since bitcoin is an electronic currency and not a security, he says, there’s no prohibition against a trade where a group agrees to purchase enough to push up the price and then cashes out in moments.
If dealers not only pushed the price up but also went online to spread rumors, that may count as fraud. Bittrex, a digital currency market, recently wrote to its customers warning their accounts may be frozen when they banded together into “pump classes” aimed at manipulating prices. The legislation may also be different for other electronic coins. Depending upon the particulars of how they’re structured and how traders expect to create money from them, some could count as currencies, as stated by the U.S. Securities and Exchange Commission.
— Bitcoin News (@BTCTN) March 7, 2018
Asked about whether large holders could move in concert, Roger Ver, a renowned early bitcoin investor, said in an email: “I guess that’s probably true, and individuals ought to have the ability to do anything they want with their money. I have never had time to get things like that though.”
“As in any asset class, big individual holders and large institutional holders can and do collude to control price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, composed in an email. “In cryptocurrency, such manipulation is intense because of the youth of those markets and the speculative nature of the assets.”
The current rise in its price isn’t easy to describe because bitcoin has no inherent value. Its most fervent believers say it might displace banks and even traditional money, but it is worth what someone will trade for it, and nothing more, which makes it prey to big shifts in sentiment.
Like many hedge fund managers specializing in cryptocurrencies, Samani constantly tracks trading activity of addresses known to belong to the largest investors in the coins he holds. (Though bitcoin transactions are made to be anonymous, each is related to a coded address which can be observed by anybody.) When he sees action, Samani immediately calls the likely sellers and can often get advice on motivations behind their sales and their trading strategies, he says. Some funds wind up purchasing one the holdings of another right, without going into the open market, to avoid affecting the currency’s price. “Investors are typically more forthcoming with different shareholders,” Samani states. We all just need to make money.” Ross says collecting intelligence is legal.
Regular traders, of course, don’t have the cachet necessary to get a multimillionaire to take their telephone. While they can monitor addresses with large holdings on the internet and begin heated conversations of market moves on places like Reddit forums, monitor conversations by various financial bloggers like Philip Davis’s Articles at Seeking Alpha, they’re finally in the dark on the larger bitcoin participants’ plans and motives.
Ordinary investors are at a much greater disadvantage in smaller electronic currencies and tokens. The top 100 bitcoin addresses control 17.3 percentage of all the issued currency, based on Alex Sunnarborg, co-founder of crypto hedge fund Tetras Capital. With ether, a rival into bitcoin, the best 100 addresses control 40% of their distribution, and with coins such as Gnosis, Qtum, and Storj, top holders control more than 90 percent. Many big owners are part of those teams running these jobs.
Some argue this is not any different than what occurs in more established markets. “Much like those equity deals, often the creators and a handful of investors will own the vast majority of the asset.” Other investors state the bees won’t dump their holdings, because they have faith in the long-term potential of their coins. “I believe that it is common sense that these snakes who own as much bitcoin and bitcoin money, they do not want to ruin either one,” says Sebastian Kinsman, who lives in Prague and trades coins.
BOTTOM LINE – It’s not always illegal for large holders of some cryptocurrencies to talk about trading with each other. That places small buyers at a disadvantage.