Is the concentration of bitcoin a real problem?
Is there enough bitcoin left out there? Is it too late to start investing in bitcoin? Will most of humanity be excluded due to the concentration of bitcoin by a few? These are logical and frequent questions among those taking the orange pill for the first time.
It is also normal that those who wish to break the chains of FIAT domination take part of these concerns. And the fact is that there is no point in tearing down one system for another if the characteristics and defects of the one being replaced are replicated. In this case, one of the main fears is the large accumulation of bitcoins by early investors, the classic 1% having more than the remaining 99%.
To assess whether these fears are unfounded or have validity, or at least try to, let's go to the numbers. However, I must first make some clarifications, in this analysis I will be taking data from the website Glassnode which specializes in providing data on the Bitcoin market, blockchain data and network performance.
I will also be separating miners and Exchanges in the ranking, as the address of an Exchange houses the capital of its millions of users. That said, the ranking of holders will be as follows:
Shrimps (<1 BTC).
Crabs (1-10 BTC)
Octopus (10-50 BTC)
Fish (50-100 BTC)
Dolphins (100-500 BTC)
Sharks (500-1,000 BTC)
Whales (1,000-5,000 BTC)
Humpback Whales (>5,000 BTC).
Now let's see in the following image the percentages that each group has of the total bitcoins available at two different times. Let's see the differences and what we can interpret from this data.
Image made by me in Paint taking data from Glassnode
As you can see, there is a decrease in three of the big Bitcoin players (miners, exchanges and whales). The increase in Humpbacks and Sharks can be explained with the decrease in the accumulated by Whales, as these may have moved to either of the two aforementioned categories due to the buying or selling of their bitcoin holdings.
Something to note is that the lower train has increased in a ¨significant¨ way its weight in the accumulation of BTC. This may be either because new users and holders have joined Bitcoin or because those who were already in the ecosystem have decided to withdraw their funds from the exchanges to protect themselves against possible bankruptcies such as those that occurred during 2022.
These numbers alone do not give us enough context to answer the initial questions. That is why I also provide you with the following data on the number of participants in each investment category:
Miners (51k)
Major exchanges (15)
Humpbacks (220)
Whales(2k)
Sharks(1.5k)
Dolphins(10k)
Fish(11k)
Octopus(72k)
Crabs(560k)
Shrimps(22M)
If we do a quick calculation it gives us that approximately 0.65% of investors (from Miners to Octopus, excluding Exchanges) have in their control 71.2% of all coins. The above numbers could be a source of concern due to the high concentration of bitcoin, however, the progression is heading towards a state where large investors concentrate fewer and fewer coins.
It is important to note that the above is an estimate due to the pseudo-anonymous nature of bitcoin. Also for practical reasons in this analysis I did not exclude bitcoins that are considered lost (including the 1.04 million bitcoins in ¨poder¨ of Satoshi Nakamoto), although doing so would change the picture to the detriment of whales and humpbacks.
Although large institutional investors (financial and state-owned) have now appeared, the increase in the amounts in the hands of Shrimps and Crabs, albeit slowly, is a constant process since Bitcoin emerged in 2009. And it is likely to continue over time.
Some of the reasons for this is that ue to the fact that unlike FIAT you can't print more coins in an unlimited way (something that always favors the mega rich). Also, you will always need to spend some satoshis to satisfy your economic needs (whether you are a humpback or a shrimp). Even as Bitcoin becomes more popular as a payment method more people will have the opportunity to accumulate satoshis and exchange value for value.
Image by 3D Animation Production Company from Pixabay
The picture would result in less concentration of bitcoin in a few hands if we were able to separate the wallets from custodian platforms for small investors like Grayscale and from Wrapped BTC on other blockchains.
Then we can say that there is indeed a concentration of bitcoins in a few hands, but not at the alarming level of the traditional FIAT system. And, moreover, it is proven that over time that concentration in a few hands has decreased and will continue to do so. Therefore, in my opinion: there is enough bitcoin for everyone, it is never too late to start investing in bitcoin and most of humanity will not be excluded due to the concentration of bitcoins by a few.
And you, what do you think?
Disclaimer: this article is not any kind of investment advice, it is intended for informational purposes only. You are solely responsible for your investment decisions.
Originally posted on Hive
