The secret dream of almost any trader is to corner a market, or so some might think. The question here is simple – Could a group of wealthy individuals attempt to the corner the Bitcoin market to such a degree as to influence the price? The answer, of course, is maybe. At this point in 10-year existence of Bitcoin, attempting to corner the Bitcoin market may be possible, but potentially very risky.
The following figure is the driver behind the discussion. The CNN-provided figure shows the distribution of ownership of Bitcoin compared to wealth in the so-called “Real world” (the “Real world”, according to the authors, are owners of euro and dollar financial assets as opposed to Bitcoin). Fascinatingly, about 1% of Bitcoin owners own about 70% of all outstanding Bitcoins. This contrasts with about 3% of the global population owning about 70% of global wealth. Interestingly, the difference between Bitcoin ownership and other financial asset concentration is not that much.
Shifting to the green portion, the top 0.71% of Bitcoin owners own 55% of the cryptocurrency, while the distribution is slightly smaller for owners of other financial assets. The top 0.71% of wwners of euro and dollar denominated assets own about 41% of all the wealth.
With this background, could someone attempt to corner the Bitcoin market? Before speculating on the issue, lets take a brief history lesson on perhaps the most famous attempt to corner a market – the Hunt brothers’ attempt to corner the global silver market.
One of the most famous attempts to corner a market was made by billionaire oilman H.L. Hunt. In 1970, Mr. Hunt was concerned that the world was entering a very volatile economic future. His concern was that paper money would become worthless. His first thought to hedge against this possibility was to buy gold. Unfortunately, the U.S. federal government prohibited private citizens from owning gold. Mr. Hunt and his brother then turned to a metal with less restrictions on ownership – silver. When the Hunt brothers got into the silver market, the precious metal was trading at $1.50 per ounce.
Over the next few years, the Hunt brothers owned contracts for around 100 million ounces of silver. Fascinatingly, instead of just selling the contracts, the Hunt brothers took physical delivery, placing the silver in a Swiss vault.
Fast forward to 1979, and the Hunt brothers had manufactured an actual global shortage of silver, holding around $4.5 billion of silver in those Swiss vaults. The shortage caused the price of silver to continually rise, reaching $50 per ounce by Thursday, March 27, 1980.
Then came the famous fateful day. The Hunt brothers’ concentrated ownership of silver prompted the New York Mercantile Exchange to adopt “Silver Rule 7”. The rule put restrictions on purchase of silver with margin calls. When silver prices collapsed on “Silver Thursday” (March 27, 1980), the Hunt brothers faced a massive $1.7 billion loss from margin calls. After a federal investigation, the Hunts were convicted of attempting to corner the market.
Could Bitcoin Suffer a Similar Fate?
The silver experience begs the question – Could Bitcoin go through a similar attempt to corner the market? So far, the evidence is no. For one thing, it would be difficult given the transparency in the Bitcoin market. If one of the large owners of Bitcoin attempted to amass even more ownership, that ownership would be known by all others. Additionally, such an attempt to corner the market could cause some to give up on Bitcoin ownership, and a loss of confidence in the Bitcoin currency would be harmful to its value. Remember, part of Bitcoin’s value is in its usefulness in exchange. If an attempt to corner the market led to a decline in demand for exchange, it could destroy the whole Bitcoin market.
In any event, it is possible that an individual or entity could attempt to corner the Bitcoin market, although, it would likely not be in their best interest.