The Impact Of Ether Whales On The Market

April 24, 2022 6:42 pm

The whole purpose of crypto and blockchain in the first place is so that processes and wealth can all be decentralized so that system is not able to be controlled by a single entity whether it be a government or a company.

With that being said, the data so far shows that there is a high degree of wealth concentration among crypto holders where around 30% of Ether is controlled by a tiny fraction of wallets.

The same thing also applies to Bitcoin, but to a smaller degree at 20% where the majority of these are expected to be large financial institutions.

These wallets are referred to as whales and many believe that they have a large influence on the economic activity that happens on the market.

Ether whales have had the most attention as many speculate that Ethereum is far from being decentralized and may actually be one of the most centralized crypto projects that has not been pursued by the SEC.

Chainanalysis.com reports:

We took a deeper look into the role of Ether whales in the market and found that they account for just 7% of all economic transaction activity.

Furthermore, these whales have no meaningful impact on the price of Ether; they do, however, make the market more volatile on a daily basis with their large sell-offs.

We define whales as the top 500 holders of cryptocurrency, excluding services, who store their holdings off exchanges.

Distinguishing the whales from services is the most difficult step in this analysis, and can only be done with years’ worth of blockchain data that has been linked to real-world entities.

As of May 1, 2019, of the top 500 largest holders, 124 were services, and the remaining 376 were individual whales. We found that these 376 whales control 33% of the circulating supply in 2019, down from 47% in 2016.

Ether whales are mostly storing their assets off crypto exchanges and therefore may make up a smaller percentage of all trading volume than expected.

With that being said, it is pretty likely that they are the ones that cause periods of high volatility and extreme price swings during pivotal moments.

Ethereum is particularly a focus point for this because the crypto has the highest degree of concentration when compared to other crypto projects.

The crypto community in the past has accused Ethereum of being controlled by a large number of ICO investors which they are speculating may have included large banks and other financial institutions.

The XRP community, in particular, believes that this may be one of the reasons why the SEC did not pursue Ethereum, but XRP instead.

Chainanalysis concludes:

These preliminary findings are consistent with the literature on stock market prices and volatility. Academics have found that large anomalous fluctuations in traded volumes of particular stocks, notably the S&P 500, tend to impact volatility and not price levels.

The Chainalysis team is continuing to improve its models, but it is certainly encouraging that the cryptocurrency market is behaving in a way that is consistent with stock market fundamentals.

Although it seems that concerns about the impact of whales on market prices have been overstated, there are still important caveats to our research.

We cannot rule out the possibility that whales can impact price changes within single days based on outlier events.

Our research analyzed the general impact of flows from Ether whales, and did not exclusively look at the impact of outlier events.

It is important that crypto projects remain decentralized in nature as failure to do so would jeopardize the entire purpose of why blockchain was created in the first place.

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