There She Blows

The Bitcoin Whales Are Cutting Back

With so many greater fools out there, it might be a good time to sell.
Updated on
Photographer: Reinhard Dirscherl/ullstein bild via Getty Images

If you're Bitcoin-rich and sitting on enormous, life-changing gains, here's a tip from the pros: Sell loudly, publicly and theatrically. You just might avoid charges of epic hypocrisy.

In recent days, members of the cryptocurrency old guard have announced they're bailing out. Some, like Emil Oldenburg, claim to be switching to Bitcoin Cash -- a spin-off that's better at the whole payments thing than the more rigid original. Others, such as Litecoin founder Charlie Lee, are selling rival tokens to supposedly avoid conflicts of interest in what's a fiercely partisan market.

The common thread here is the effort to portray selling as a noble act, not a cash grab. Maybe in these cases, it's true. But it's remarkably fortunate timing. Bitcoin has soared to $17,000 from $950 this year, and Litecoin to $330 from $4.

There seems to be a broader trend here. There's been a drop in the number of ultra-fat Bitcoin holdings, owned by the market whales, at exactly the time when Wall Street is desperate to play in the Bitcoin casino and ordinary punters are mortgaging their house to bet on a hot crypto tip.

A trawl through the Bitcoin rich list this year, using the Wayback Machine (a non-profit digital archive of the web), shows an explosion in the number of huddled masses holding fractions of the digital token. But the ranks of the Bitcoin-wealthy have thinned. There are more minnows, but fewer whales. Everyone's richer in dollar terms, but the balance of new ownership is shifting to the little guy.

Fewer Whales, More Minnows

Addresses by number of Bitcoin show a drop at the top since January as bottom booms

Source: bitinfocharts.com, WayBack Machine

In any other market, charges of hypocrisy would be leveled at those heading for the exit, given their evangelizing about the Bitcoin future. But this is crypto-land, where wealthy geeks argue for days on end about block sizes, consensus algorithms and the spirit of the original Bitcoin white paper, without ever mentioning more obvious motivations like making money.

So, in fairness, it is possible that some of those ditching Bitcoin are doing so because they'd rather reallocate crypto-capital to other tokens -- such as Bitcoin Cash -- instead of just cashing in their chips and retiring on a pile of U.S. dollars. Oldenburg's criticisms of Bitcoin ring true. Its network congestion and high transaction fees are deterring adoption.

Still, if this trend continues, it will be hard to ignore the niggling feeling that the latecomers piling into Bitcoin at the end of 2017 aren't quite as astute as the early birds who are getting out.

Take Profit For A Noble Cause

Some of Bitcoin's old guard are trashing the cryptocurrency, after huge gains, in favor of rivals

Source: Bloomberg

Wall Street's best and brightest think they can outsmart the market using technical analysis, exchange arbitrage and derivatives. Denizens of Main Street, meanwhile, reckon word-of-mouth tips on the next big thing will help them afford early retirement. But maybe the true risk-takers, who've been compensated handsomely for making a brave bet, will make fools of us all.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lionel Laurent in London at llaurent2@bloomberg.net

    To contact the editor responsible for this story:
    James Boxell at jboxell@bloomberg.net

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