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Big, greedy Ethereum whales account for 33 percent of cryptocurrency’s supply

Ethereum ETH whales account for just 7 percent of transaction activity in the market – but they control a third of the cryptocurrency’s entire circulating supply.

That’s according to a new study by Chainanalysis which found that although these whales don’t have a sizeable impact on Ether’s price, their large sell-offs do make the market more volatile on a daily basis.

For context, whales are defined as the top 500 cryptocurrencies excluding services, who keep their coins off exchanges.

As of May 1, 2019, Chainalaysis’ research showed that out of the top 500 holders, 124 were services and the remaining 376 were individual whales, which controlled 33 percent of the circulating supply in 2019. This, however, represented a decrease in comparison to 2016 when they controlled 47 percent of the market.  

Graph via Chainalysis

The study shows that whales consistently hold 25 to 40 percent of Ether’s circulating supply, but only account for between 5 and 18 percent of economic transaction volume.

This is largely attributed to the fact that most whales (approximately 60 percent) hold on to their coins or refrain from trading with exchanges on a regular basis. 

Most whales aren’t trading. Graph via Chainanalysis.

As past of its study, Chainanalysis also explored the possible correlation between Bitcoin‘s and Ether’s price.

The firm used a VAR model, a method commonly used in financial time series analysis, and looked at the impact on Ether’s price and intraday volatility by focusing on Bitcoin‘s price and the activity caused by whales sending funds to and receiving funds from exchanges.

The analysis focused on the period of 2016 to 2019, and tackled three assumptions:

  • Ether prices follow Bitcoin prices. On average, a 1-percent increase in Bitcoin prices yesterday leads to a 1.1-percent increase in Ether prices today. The firm found, just like previous studies have suggested, that there is no statistically significant impact of Bitcoin prices on Ether’s intraday volatility.
  • Funds sent impact volatility but not price. Funds sent to exchanges by whales don’t directly impact Ether price but do contribute to price volatility. On average, a whale that sent $1 million worth of Ether two days ago leads to a 0.1 unit increase in intraday volatility today, which is relatively small considering values of intraday volatility range from 0.02 minimum to 417 maximum.
  • Funds received have no impact. Funds that whales receive from exchanges don’t impact Ether’s prices, nor intraday volatility.

Overall, Chainanlysis’ findings fall in line with the literature on stock market prices, and volatility.

In any case, Chainanlysis draws a positive spin on this noting, it’s “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 adds.

If the cryptocurrency market operating in a similar way to the traditional stock market is a good thing or not, that’s entirely up for discussion.

But, perhaps it’s a sign that things are really maturing?

Published May 16, 2019 — 13:36 UTC

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