The cryptocurrency world is even more concentrated than most observers probably realize.
While large holders of Bitcoin that are commonly referred to as whales own almost a fifth of the largest cryptocurrency, researcher Coin Metrics says the unique identifiers known as addresses show that only about 300 entities control around 80% of Tether, the token that serves as a conduit for trading on many of the world’s largest crypto exchanges.
Tether has been at the center of controversy since it was introduced in 2015 as a way to provide liquidity to exchanges because lingering concerns about illegal uses have made it difficult for them to secure banking services. New York’s attorney general in April accused the companies behind Tether of engaging in a cover-up to hide losses and co-mingling client and corporate funds. Some of the founders and biggest exchanges have even been referred to on social media as the Tether Mafia.
“The concentration of Tether suggests that control of Tether is in the hands of a few central players who can swing Bitcoin prices, and have a vested interest in doing so," said John Griffin, a finance professor at University of Texas at Austin. "It also suggests that many exchange players have a vested interest in keeping the Tether game going."
There are just 318 addresses that hold $1 million or more of Tether, according Cambridge, Massachusetts-based Coin Metrics. Compared with Tether, Bitcoin is actually widely held. More than 20,000 Bitcoin addresses have balances of at least $1 million, according to BitInforCharts.com.
The high ownership concentration of Tether raises the level of risk in the already volatile $300 billion cryptocurrency market. With a market capitalization of $4 billion, Tether was used in 40% and 80% of all transactions on two of the world’s top crypto exchanges, Binance and Huobi, respectively, according to Coin Metrics.
The Tether whales include some of the world’s largest exchanges, such as Malta-based Binance and Hong Kong-based Bitfinex, whose owners also issue Tether, according to Nic Carter, co-founder of Coin Metrics. Also among the big holders of Tether are brokers that cater to Chinese investors needing to exchange yuan and high-frequency traders, he said.
Griffin has linked the so-called stablecoin to market manipulation and the dramatic surge in Bitcoin’s price in 2017.
Coin Metrics looked at addresses with at least $1 million Tethers on the OMNI and Ethereum blockchains. Tether is also used on several other smaller digital ledgers. A single person or entity can own multiple addresses, so ownership may even be more concentrated.
"The extremely centralized holdings bring about extreme volatility when large swathes of Tether are released in the market," said Sid Shekhar, co-founder of market tracker TokenAnalyst.
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