(BFM Bourse) – Despite its growing adoption by the global population, bitcoin remains an asset whose holdings are highly concentrated. A study by the National Bureau of Economic Research reveals that 0.01% of bitcoin holders alone controlled more than a quarter of the 19 million bitcoins in circulation today.
Bitcoin dreams of being an independent “virtual currency” and operating completely decentralized, to understand “independent of any state or monetary authority”, but thirteen years after its creation, the concentration of bitcoins in the hands of a few raises questions. This is in fact far greater than the concentration of US household wealth, in dollars – which, however, at the end of the health crisis reached its most extreme level in decades.
The study (available here), conducted by finance professors Antoinette Schoar, of the Sloan School of Management at MIT, and Igor Makarov, of the London School of Economics, shows that the 10,000 largest wallets held 5 million bitcoins at at the end of December 2020, or the equivalent of about 245 billion dollars at the current rate (48,900 dollars at 4 p.m. on Tuesday). However, according to Blockchain 2021, 66 million people then owned bitcoins across the world. This therefore means that about 0.015% of cryptocurrency holders controlled 26.9% of the 18.6 million bitcoins then in circulation (the 19 million “mined” bitcoin mark has since been crossed).
An incomparably greater concentration than that of the global heritage
By comparison, the richest 1% of U.S. households held about a third (32%) of all wealth at end-September 2021, according to data from the Fed – a share that climbs to nearly 70%, however. if we take into account the 10% of the wealthiest households.
The study has, and this is a first, mapped and analyzed every transaction made in the more than thirteen years of bitcoin’s history. This allowed them to identify 2258 “wallets” (electronic, physical or digital wallets, allowing to store, send and receive cryptocurrency) with a balance of at least 1000 bitcoins as of December 31, 2020, controlling a total of 7.9 million bitcoins, almost half of the bitcoins in circulation at the time of the study. It then remained for the two researchers to distinguish between addresses belonging to individual investors and those belonging to intermediaries.
Because when an investor deposits his bitcoins on a platform (Binance type), the latter “mixes” them with the bitcoins of his other users to store them in what are called “cold wallets” – or bitcoin addresses saved on devices that are not connected to the Internet for security reasons. These intermediaries generally only have a few bitcoin addresses but these have very large balances. Binance’s “cold wallet”, one of the largest in the world, thus held more than 300,000 bitcoins at the end of June 2021, note the two researchers. By analyzing the transaction flows linked to these addresses, they were then able to determine – in a large majority of cases – whether the “wallets” in question belong to individual investors or to intermediaries.
10,000 accounts trust 27% of the stock
Of the 2258 addresses holding more than 1000 bitcoins each, 1154 are “cold wallets” linked to intermediaries and 1013 belong to individuals. The 47 others were classified as “ambiguous”, Igor Makarov and Antoinette Schoar not being able to identify with certainty their owner. By repeating this process with the slightly smaller wallets, they came to the conclusion that individual investors collectively controlled 8.5 million bitcoins at the end of last December. And these individual holdings are still very concentrated: the 1000 largest investors control around 3 million BTC, a figure that jumps to 5 million BTC when you take into account the 10,000 largest individual “wallets”.
In other words, the 1000 best endowed personal “wallets” (or 0.0015% of all “wallets”) then held more than 16% of all bitcoins in circulation, a figure that rises to nearly 27% with the 10,000 largest “wallets” (ie 0.015% of the total). Other individual investors with bitcoin, thus representing 99.985% of the global number of digital wallets, collectively controlled 3 million bitcoins.
The study also shows that the balances held with intermediaries have continued to increase since 2014, when the Kaiko company began to compile data.At the end of 2020, it reached 5.5 million bitcoins , or about 30% of all bitcoin in circulation.
About fifty miners exploit half of the world’s capacities
The data also shows that the concentration of miners is even greater than the concentration of bitcoin holders, since the top 10% of miners controlled 90% of the mining capacity, and 0.1% of them (about 50 miners) alone master half of the total mining capacity!
According to the authors of the study, the consequences of this centralization are mainly of two types. This “makes bitcoin vulnerable to systemic risk and also implies that the majority of gains from further adoption are likely to disproportionately benefit a small group of participants,” they write. “Despite its 14 years of existence and the media hype it has generated, it is still a very concentrated ecosystem,” notes Antoinette Schoar.
Quentin Soubranne – © 2021 BFM Bourse