In order to decrease the operating and transactional costs and increasing efficiency, crypto exchanges often come up with their native cryptocurrency. These crypto exchange tokens have gained a lot of popularity among the traders and investors. However, a report by IntoTheBlock has reported that many of these tokens have a very high whale concentration, which can be very harmful to the investors.
Binance Coin had a market capitalization of $10 million in 2017. A couple of later, the market cap exploded to a whopping $5.5 billion approximately and ultimately it declined to $2 billion. Bitfinex’s token UNUS SED LEO was launched in mid-2019 but its market cap boomed to more than $1 billion. There are many such crypto exchange tokens that have garnered a huge following and lured in many investors.
Crypto exchange tokens with high whale concentration might be dangerous
UNUS SED LEO, according to the data provided by IntoTheBlock, has more than 99% whale concentration. This means that a small group of individual entities virtually control the price of the currency.
It might be possible that these whales belong to the exchange itself. Such situations possess a constant threat to a layman investor. Huobi Token has almost 93% of whale concentration while FTX Token has 96% whale concentration.
Whales cannot sway BTC price at 1%
Looking at the world’s leading cryptocurrency, Bitcoin, the whale concentration is just 1%. In such a scenario, the whales do not possess the power to sway the price of the crypto. The growth Bitcoin has made over the years can be said as organic unlike the other indigenous tokens, that might have taken the inorganic path.
Hence we can treat these crypto exchange tokens having high whale concentration as a massive red flag, especially for the investors looking to invest in such tokens. Investing in such propositions might look attractive initially but it can generate massive losses for investors.