Roughly One-Third of Bitcoin Is Controlled by a Small Cabal of Whales, According to New Study

A store in Berlin, Usultan Department, in the nation of El Salvador, where cryptocurrency has been declared legal tender.

A store in Berlin, Usultan Department, in the nation of El Salvador, where cryptocurrency has been declared legal tender.
Photo: Alex Peña (Getty Images)

For all the talk of democratizing finance, the vast majority of Bitcoin continues to be owned by a relative handful of investors.

As flagged by Bloomberg, newly released data by the National Bureau of Economic Research (NBER) shows that just 10,000 individual investors control roughly one-third of the Bitcoin in circulation. This research advanced on prior studies by distinguishing between intermediaries like cryptocurrency exchanges, traders, and brokers that process vast amounts of Bitcoin for customers, versus individually-held accounts. Intermediaries control about 5.5 million Bitcoin at the end of 2020, while individuals controlled about 8.5 million Bitcoin. The top 1,000 investors, which are popularly known as “whales,” controlled around 3 million of Bitcoin’s tokens.

To put it another way, at the Jan. 1, 2021 price of $32,203.64, intermediaries controlled $177 billion in Bitcoin, while by the same metric, individuals controlled nearly $274 billion. Those 1,000 investors controlled around $96.6 billion in Bitcoin, or somewhere in the very rough ballpark of $96.6 million each on average. To get to that number does require, of course, ignoring that moving that much Bitcoin would shift the market and affect the cryptocurrency’s value (a Bitcoin is worth nearly $62,400 as of Tuesday). It’s also probably underestimating the degree of control, as no one has any reliable record of who’s behind those 1,000 accounts.

Most likely, the people behind those accounts are individuals who managed to accrue huge stockpiles of Bitcoin early and just kept getting richer and richer—possibly by using the sheer weight of their holdings to manipulate prices. Crypto enthusiasts obviously might not care so long as their own financial trajectories mirror those of the whales on a pettier scale.

“To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point,” authors Igor Makarov of the London School of Economics and Antoinette Schoar of the MIT Sloan School of Management wrote in the report. “Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services.”

Identified scams and other criminal activity on the Bitcoin network are substantial, but perhaps not on the scale that authorities have claimed, according to the report.

“We calculate that there are about $550 million flowing to addresses that have been identified as scams, about $16 million in identified ransom payments, and more than $1.6 billion for dark net payments and dark net services,” the authors wrote. “In addition, there are about $1.7 billion flowing to addresses affiliated with gambling and another $1.4 billion in mixing services.”

The authors cautioned that “measurement of concentration most likely is an understatement since we cannot rule out that some of the largest addresses are controlled by the same entity.” As Bloomberg noted, one example is the 20,000 separate addresses controlled Satoshi Nakamoto, the pseudonym of the person or persons who developed the cryptocurrency and disappeared without withdrawing their profits. Those accounts were measured as belonging to 20,000 separate individuals by the process used in the study.

Miners, the computer farms that generate new Bitcoins, are even more concentrated by the NBER estimate—with the top 10% controlling 90% of mining capacity, and just 0.1% controlling 50%. This tracks with the increasing difficulty of mining new Bitcoins over time, which scales in terms of computational and thus power demands and has resulted in large-scale Bitcoin farms using huge stockpiles of dedicated hardware being the main way new units are generated.

This “inherent concentration makes Bitcoin susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants,” the researchers wrote.

Bloomberg noted this could make the Bitcoin network susceptible to a “51% attack”—the only way a malicious party could take it over is by seizing control of over half of the miners working on it. Such an attack would be of unprecedented scale and seems quite unlikely, at least outside of some nation-state or James Bond villain scenario.

The full study is available for reading over at NBER here.