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There isn’t any scarcity of allegations with regard to shady companies that go on behind the scenes within the crypto market. A number of property achieve worth with no obvious demand available in the market and identical to that we now have witnessed many property crash in a matter of hours.
On account of this heavy instability in worth, many individuals have misplaced nice sums of their life financial savings. Pooyan Ghamari, who based the Swiss based mostly Blockchain platform Counos, has revealed an article to deal with this very concern. On this article, we are going to undergo his remarks to see if they will clarify crypto market worth instabilities.
Centralization Is the Plague of Crypto Market
Manipulation happens when an individual or a bunch of persons are within the place of authority and energy in a system. If energy is really decentralized, there could be no manipulation and tampering. This was the promise of the crypto world.
Nevertheless, as Pooyan Ghamari has made it evident with the instance of Bitcoin, decentralization within the crypto world is way much less prevalent as broadly believed.
The actual concern has to do with the possession of the asset itself. That is the place the true that means of decentralization have to be discovered. If nearly all of an asset is held by a small group of individuals, can it actually be thought-about decentralized?
In terms of the distribution of Bitcoin itself, the folks of US, Romania, Czech Republic, China, Spain, Poland, Turkey, Japan, Switzerland, and South Korea have probably the most quantity of Bitcoin. Those that retailer a large amount of Bitcoin are known as Bitcoin whales, and these whales can have an effect on the costs available in the market and alter them in their very own favor. One of many worst issues that these whales do is to pump and dump the value. Merely put, pump and dump means rising the costs artificially after which after merchants are drawn to the market, whales would rush in and promote the cash with a excessive worth after which go away. This may lead to critical loss to all patrons and critical profit for the whales.
By reviewing the Bitcoin addresses and the quantity of Bitcoin they maintain, we are able to get to some attention-grabbing outcomes.
Quantity of Bitcoin
Variety of Addresses
Share of Addresses
Whole Bitcoin in Addresses
Share of Bitcoin out of All Obtainable Bitcoin
(0 – 0.001)
15231095
48.66%
2,996
0.02%
[0.001 – 0.01)
7585797
24.24%
30,707
0.17%
[0.01 – 0.1)
5367010
17.15%
173,651
0.94%
[0.1 – 1)
2295233
7.33%
724,732
3.92%
[1 – 10)
666683
2.13%
1,731,410
9.37%
[10 – 100)
137586
0.44%
4,450,163
24.09%
[100 – 1,000)
13854
0.04%
3,476,495
18.82%
[1,000 – 10,000)
2091
0.01%
5,212,095
28.22%
[10,000 – 100,000)
103
0%
2,421,617
13.11%
[100,000 – 1,000,000)
1
0%
247,502
1.34%
This table shows that for example %0.01 of Bitcoin holders (2195 out of 31,299,453 addresses) have more than the 42 percent of the available Bitcoin, and %0.05 of Bitcoin holders (16,049 out of 31,299,453 addresses) have more than 61 percent of all Bitcoins! On the other hand, %72 of Bitcoin holders (22,816,892 out of 31,299,453 addresses) have less than 2 percent of Bitcoins altogether. These numbers indicate that the most amount of Bitcoins are held by a very small minority and most people are working with a very small percentage of Bitcoins in the market.
This huge centralization of power in the form of assets owned, does not bode well for the real users in the market. And unfortunately, Bitcoin is only an example, similar cases are numerous in the crypto market, from all the major coins to lesser known ones.
Market Manipulations
The extreme fluctuations in the prices of digital currencies can be explained by the fact that the market is a limited market. Where there should be real decentralization, we can clearly see heavy centralization.
The fact that decentralization is not real means that most assets are being held by a limited group of people. They hold on to massive amounts of digital currencies.
This small group of people holding on to most assets are in fact the big players in the market who are behind the most well-known and major cryptocurrency exchanges in the world. They dominate the market based on the various digital currency pairs that they have created. And with the help of the bots, they can easily fluctuate prices.
How exactly? By pumping and then dumping the assets they own.
This limited group has vastly extensive information about the market, since they control the majority of the assets, so by looking at whether an asset is closed long or closed short, they can see which side is weightier. Then they will pump that side.
Through this pumping they will influence the market and are able to liquidate investors’ money easily.
In this way they can control the prices of assets in the market. And since they control the prices, they can control the volume of the money that is entered into the market.
This centralized group of people can sell their assets as if they are loaning money from the bank. They manipulate the market by pumping and dumping, and so when they eventually buy back their assets, it is as if they are paying back the loan to the bank.
However, there is a crucial nuance here. They do not pay the same amount back to the bank. Not at all. They sold at a much higher price, and when the prices come down the sale volume will be lower for them. This is how they can hold on to most of the money.
So, what happens to the market in this situation?
Assets have been taken out of the market and will never return to be circulated. This is one of the main reason the market crashes. Because new money does not enter the market.
Those who want to sell, they bring the prices down so that others won’t sell. And the next step is to make the prices go lower, so new investors can enter the market.
All this pumping and dumping is not the end. This group of people also influence the market so heavily that they cause fluctuations in the prices all the way from 10 to even 40 percent.
What does this all mean for the real users? As Pooyan Ghamari put it:
“Their [people’s] cash, their life financial savings, will ultimately be liquidated by all this worth manipulation by a small group of individuals.”
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