Why Is Bitcoin’s Price Falling Despite 30% Being Held by Large Investors?

Approximately 30% of Bitcoin’s total supply is held by large investors, including institutional players and early adopters, which would theoretically reduce circulating supply and support price stability. Yet, Bitcoin’s price has experienced notable volatility and downward pressure in recent months. Understanding this disconnect is critical amid ongoing regulatory scrutiny and shifting macroeconomic conditions.

What happened

Research confirms that around 30% of Bitcoin is held by so-called "whales," a group comprising institutional investors and early adopters. Among these, the Grayscale Bitcoin Trust (GBTC) stands out as one of the largest holders, with over 650,000 BTC disclosed in its latest SEC filings. This concentration suggests a significant portion of Bitcoin is “locked up” from active circulation.

Since 2021, institutional products such as the ProShares Bitcoin Strategy ETF (BITO), launched in October 2021 in the United States, have increased Bitcoin’s accessibility to broader investors. Multiple spot Bitcoin ETF applications remain pending with the U.S. Securities and Exchange Commission (SEC), which has delayed approvals citing concerns about market manipulation and investor protection.

Regulatory scrutiny has intensified through 2023 and into 2024, with the SEC ramping up enforcement actions and maintaining a cautious stance on spot Bitcoin ETFs. At the same time, macroeconomic headwinds—rising interest rates, inflation fears, and geopolitical tensions—have contributed to a general risk-off sentiment in financial markets, affecting crypto assets including Bitcoin.

Despite the large holders’ supply concentration, Bitcoin’s price has not remained stable and has instead shown volatility and downward trends over recent months. Analysts note that the “locked-up” status of these holdings does not preclude strategic selling, rebalancing, or use in derivative and collateral markets, which can influence liquidity and price movements.

Why this matters

The concentration of Bitcoin ownership among large investors theoretically reduces available supply, which under traditional economic logic should support price stability or appreciation. However, the actual market behavior reveals a more complex dynamic where locked-up holdings may still indirectly affect liquidity and price through off-chain activities such as collateralization and derivatives trading.

Institutional product development, including futures-based ETFs and trusts, plays a dual role: it enhances accessibility and liquidity but also introduces new market complexities. For example, futures ETFs initially increased demand, but ongoing delays in spot ETF approvals have introduced uncertainty, which can depress investor confidence and contribute to price volatility.

Regulatory uncertainty, particularly from the SEC’s cautious approach, has been identified as a key factor dampening investor sentiment. This environment may prompt some large holders to liquidate or reduce exposure, counteracting the supply-lock effect and amplifying price fluctuations.

Macroeconomic factors further compound this environment. Rising interest rates and geopolitical tensions generally reduce risk appetite across asset classes, including cryptocurrencies. This broader risk-off sentiment can trigger sell-offs by both retail and institutional investors, irrespective of supply concentration, influencing Bitcoin’s price trajectory.

What remains unclear

Despite the confirmed concentration of Bitcoin in large holders’ wallets, the extent to which these investors are actively selling, collateralizing, or otherwise deploying their holdings in ways that affect market liquidity is not fully documented. Detailed transaction data and on-chain flow analyses remain limited, especially given off-chain transactions and privacy considerations.

The precise short-term versus long-term impact of pending regulatory decisions—such as spot Bitcoin ETF approvals—on price stability is also unresolved. It remains unclear how much of the current price volatility is driven by regulatory uncertainty compared to broader macroeconomic pressures or internal crypto market dynamics.

Additionally, the interaction between large holders’ behavior and derivative markets (futures and options) is not comprehensively understood. How these complex financial instruments influence volatility despite concentrated supply is an open question requiring further data and analysis.

What to watch next

Decisions by the SEC regarding the approval or rejection of spot Bitcoin ETF applications, which could influence market liquidity and investor confidence.
Disclosures or filings from major institutional holders, like Grayscale, indicating changes in Bitcoin holdings or use of coins as collateral.
Macroeconomic developments, including central bank policies on interest rates and geopolitical events, that affect risk appetite broadly.
On-chain and off-chain data releases or studies shedding light on large holders’ transaction activity and derivative market interactions.
Regulatory enforcement actions or policy statements from key jurisdictions that may alter the regulatory landscape for cryptocurrencies.

Bitcoin’s price dynamics amid a significant supply concentration among large investors underscore the complexity of modern crypto markets, where regulatory, macroeconomic, and product innovation factors intersect. While a large portion of Bitcoin is held by whales, the liquidity and price impact of these holdings remain partially opaque, highlighting the need for more granular data and cautious interpretation of current trends.

Source: https://ambcrypto.com/30-of-bitcoin-is-locked-up-by-big-players-so-why-is-btcs-price-falling/. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.