Cryptocurrency has been touted as a new form of digital money not tied to government or a central bank and is therefore inherently free from bias and unequal distribution. However, a recent study by the National Bureau of Economic Research suggests that bitcoin has developed its own group of one-percenters who will likely reap most of the gains in coming years.
The NBER study found that the top 10,000 bitcoin investors own a combined 5 million bitcoins, or roughly $230 billion’s worth at recent prices. Those figures mean that, even though bitcoin launched in 2009, “participation in bitcoin is still very skewed toward a few top players even at the end of 2020,” said finance experts Igor Makarov and Antoinette Schoar, who wrote the study.
Those top players represent a mere 0.01% of all bitcoin holders and yet they control 27% of the digital currency, the Wall Street Journal reported. That compares to the old-fashion dollar, where the top 1% controlled 30% of total U.S. household wealth, according to Federal Reserve data.
Makarov and Schoar said in their study there’s a “significant skewness in ownership” in bitcoin and that “implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants.”
Bitcoin and other digital currencies have been at the center of many of this year’s wildest financial gains and losses. Although considered a highly unstable form of money by most financial experts, bitcoin reached new highs earlier this year, in part because more companies are accepting it as a form of payment.
The messaging service WhatsApp this month began piloting a new feature it said allows U.S. users to send money without paying fees, using cryptocurrency. The new payment service marks yet another example of how digital currencies are becoming more accepted in the mainstream U.S. financial scene.
As their popularity rises, digital currencies have been the target of many multimillion dollar scams in recent history. Between January and July, crypto accounted for $681 million in scam losses, according to a report from cryptocurrency intelligence firm CipherTrace.
Despite crypto’s growing popularity, relatively few people own a large chunk of bitcoin, making the digital currency much more vulnerable to large price swings from week to week, Makarov and Schoar said in their study. Makarov and Schoar collected data from bitcoin’s inception 13 years ago to the end of 2020, when there were roughly 15 million bitcoin in circulation. There are 19 million bitcoins currently in circulation, according to Blockchain.com data. The maximum number of bitcoins that can ever exist is 21 million.
The study does not reveal the names of people who own the most bitcoin.
Still, Makarov and Schoar’s work adds credibility to the lists floating around the internet of investors with the highest crypto fortunes. Matthew Roszak, chairman of blockchain company Bloq, has a crypto portfolio worth more than $1.5 billion, Forbes reported in April. The Winklevoss twins Cameron and Tyler also reportedly became billionaires from investing in bitcoin.
“Our results suggest that despite the significant attention that bitcoin has received over the last few years, the bitcoin ecosystem is still dominated by large and concentrated players, be it large miners, Bitcoin holders or exchanges,” Makarov and Schoar concluded.