Pareto principle and Bitcoin owners

[tranthidung]

In June 2020, I made Merit earners & the Pareto principle. If you are forum members, you should know of merit system. That topic proves that the Pareto principle works for the merit distribution.

Again, one more finding from Willy Woo demonstrates that the principle works, even for Bitcoin. It's about the distribution of Bitcoin among Bitcoin owners

The distribution can be distorted by huge number of Bitcoin from Satoshi, aka Satoshi's coins. It's perfect because Willy Woo already omits Satoshi's coins from the analysis.

Bitcoin distribution keeps getting better. Whales now hold only 25% of the supply.

I've updated this chart to include holdings by public companies. Though they are whales, their coins are owned by a large number of public shareholders.

Satoshi's coins omitted (assumed lost).

What's next?

• I believe that more people will accept Bitcoin & own it.
• However, as the zero-sum game, winners will take it all, according to the Pareto principle as well, so after short term effects from retail investors, whales will accumulate Bitcoin again, and they will own 80% of Bitcoin on the network again.

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[Lucius]

In simple terms, whales sell at a max price to retail customers, and they then panic at some point and become weak hands, which is then re-used by whales for a new accumulation. It definitely makes sense if we consider the old assumption that there are about 10% of extremely intelligent people who control 90% of the world’s wealth.

Yet the distribution view is something many disagree with (judging by the comments below the WW tweet), as many disagree that the middle-class category has 10-1000 BTC, and most others under 10 BTC make up only 14%?

The most important difference between ordinary people is that they have incomparably less purchasing power than the 10% at the top, which means that it is not a problem for them to buy all the BTCs on the market, only if they want to. I would love to see those who would refuse to sell for $100k or more per BTC.

[Welsh]

While Bitcoin might not be perfect in preventing whales from accumulating a vast majority of the Bitcoin in circulation, it at least tries to protect against it. Although, there's always going to be issues with any type of currency that I can think of with the rich accumulating the majority, unless your country adopts socialist values, which is unlikely at this point in time.

A way that this could be reduced is by giving some sort of benefit to keeping the coins moving through other's hands, but then that could potentially be abused if the gain is beneficial enough. Plus, the only motivating factor that could be applied is probably monetary gain, which would contradict the very purpose of it in the first place. There isn't any perfect solution, at least that I'm aware of.

The most important difference between ordinary people is that they have incomparably less purchasing power than the 10% at the top, which means that it is not a problem for them to buy all the BTCs on the market, only if they want to. I would love to see those who would refuse to sell for $100k or more per BTC.

Which is something that the model of distribution i.e block rewards is based on. It's trying to prevent those with mass amounts of money to invest, and those that are quicker than others to adopt the currency from owning the majority of the Bitcoin in circulation.

[Minor Miner]

In fact, whales are using the institutes to create instant hype in the market after hdling enough bitcoin in their reserve at the lowest price, then when the market gets hyped, rises at the top, and stabilizes there, whales gradually sell their holdings to retailers. Thus they buy at low and sell bitcoin at the highest profit. Then after making profits, they use the rest of their holdings to make dump the market, then panic selling starts and the whale starts to accumulate their holdings again.

[Tim-BTC]

Resources are always controlled by a few people, so there is a difference between the rich and the poor.
There is always a small number of people who have resources that most people look up to, perhaps because they work harder and have more capital.
The world is not completely equal, so people need to work hard to change the status quo, such as climbing stairs, stepping on one step to reach another.

I hope that all of us here can become the 20%.

[psychic fans]

In fact, whales are using the institutes to create instant hype in the market after hdling enough bitcoin in their reserve at the lowest price, then when the market gets hyped, rises at the top, and stabilizes there, whales gradually sell their holdings to retailers. Thus they buy at low and sell bitcoin at the highest profit. Then after making profits, they use the rest of their holdings to make dump the market, then panic selling starts and the whale starts to accumulate their holdings again.

Assume that there are ten participants in the bitcoin market, each with 10 yuan. If it is a small number of people making money, one of them earns 2 yuan from the other nine people, this person has 28 yuan, and the other nine people have 8 yuan, and the game can continue. If most people make money, nine of them earn 2 yuan from one person, and nine people have 11 yuan. One person not only loses money, but also owes 8 yuan, and the game can't be played anymore.

If a few people make money, the market will be sustainable; if most people make money, the market will collapse.

These are the rules of the game and the embodiment of human nature. Long-term holding is the kingly way, and I will continue to recharge my faith.

[pooya87]

Yet the distribution view is something many disagree with (judging by the comments below the WW tweet), as many disagree that the middle-class category has 10-1000 BTC, and most others under 10 BTC make up only 14%?

Usually the "upper class" and the wealthy haven't gotten wealthy out of thin air. They have amassed the wealth by thinking better than the rest of the world. So it would be an educated guess that those who are better at seeing and seizing the opportunities own more bitcoin than those who are blind to opportunities.
But that is still a guess, which is why I always disagree with this type of statistics because in bitcoin we have no way of measuring these things.

[tranthidung]

Usually the "upper class" and the wealthy haven't gotten wealthy out of thin air. They have amassed the wealth by thinking better than the rest of the world. So it would be an educated guess that those who are better at seeing and seizing the opportunities own more bitcoin than those who are blind to opportunities.
But that is still a guess, which is why I always disagree with this type of statistics because in bitcoin we have no way of measuring these things.

Smart, lucky and adaptive people are whales.

Luckiness is not enough because if they are not smart and/ or believe in Bitcoin & its economics, they would sell Bitcoin years ago when price was very cheaper than now.

Smart and adaptive people can make their fortune from zero but I know there are not so many self-made whales like that.

[tranthidung]

Usually the "upper class" and the wealthy haven't gotten wealthy out of thin air. They have amassed the wealth by thinking better than the rest of the world. So it would be an educated guess that those who are better at seeing and seizing the opportunities own more bitcoin than those who are blind to opportunities.
But that is still a guess, which is why I always disagree with this type of statistics because in bitcoin we have no way of measuring these things.

Smart, lucky and adaptive people are whales.

Luckiness is not enough because if they are not smart and/ or believe in Bitcoin & its economics, they would sell Bitcoin years ago when price was very cheaper than now.

Smart and adaptive people can make their fortune from zero but I know there are not so many self-made whales like that.

In simple terms, whales sell at a max price to retail customers, and they then panic at some point and become weak hands, which is then re-used by whales for a new accumulation. It definitely makes sense if we consider the old assumption that there are about 10% of extremely intelligent people who control 90% of the world’s wealth.

The Pareto principle states that 80% of asset belongs to 20% of richest, if we apply this principle for social wealth distribution. 80/20, not 90/10. It is why I am happy when I see the results from Willy Woo and more interestingly, it matches the principle after the author excludes Satoshi's coins. The principle would be not correct if Satoshi's coin is included in the total circulating bitcoin in the analysis.

I don't think the author excludes Satoshi's coin because just wanting to prove the Pareto principle is accurate in this case. 

[Wind_FURY]

What's next?

• I believe that more people will accept Bitcoin & own it.
• However, as the zero-sum game, winners will take it all, according to the Pareto principle as well, so after short term effects from retail investors, whales will accumulate Bitcoin again, and they will own 80% of Bitcoin on the network again.

That’s why I believe education is the answer. We the plebs should first understand the basics of Bitcoin, how and why the incentive structure works, Bitcoin’s value propositions, and how the protocol can be a fall back in case the government loses control of the monetary system. Maybe that would stop our fellow plebs from selling their coins to the billionaires?

[tranthidung]

That’s why I believe education is the answer. We the plebs should first understand the basics of Bitcoin, how and why the incentive structure works, Bitcoin’s value propositions, and how the protocol can be a fall back in case the government loses control of the monetary system. Maybe that would stop our fellow plebs from selling their coins to the billionaires?

Education is not enough because the financial game relates to emotions, psychology, intelligence and adaptation. Education is just part of it and can not change how the crowd behave on the market.

The Pareto principle is proved in history, in many areas, not only in financial or crypto market.

In academic research, the principle can be stated as 80% of highly impacted/ cited articles/ researches belong to 20% of top-notch researchers.

[Lucius]

Usually the "upper class" and the wealthy haven't gotten wealthy out of thin air. They have amassed the wealth by thinking better than the rest of the world. So it would be an educated guess that those who are better at seeing and seizing the opportunities own more bitcoin than those who are blind to opportunities.
But that is still a guess, which is why I always disagree with this type of statistics because in bitcoin we have no way of measuring these things.

This definitely makes sense, although this theory often conflicts with the notion that most BTCs are still in the hands of early adopters who mined in the early years - but we can't know how many sold those coins and how many lost their private keys. So it’s possible that the intelligent ones really recognized the opportunity and grabbed it when they saw that BTC really has the potential to achieve incredible growth in the future.

I don't think the author excludes Satoshi's coin because just wanting to prove the Pareto principle is accurate in this case. 

I must admit that I was not familiar in detail with the Pareto principle, but no matter how the author did his statistics, even without this principle it is no wonder that the intelligent (and rich) will again be able to outwit the less intelligent (and poorer) in the end. Whether it’s just that someone is intelligent or has more money, or maybe it’s about access to information when it comes to recognizing the right opportunity, it’s hard to say.

From my personal example, I can say that I first heard about BTC at the end of 2011, but I did not understand at all what it was about - until 2014 when I decided to study the whole thing a little better. I believe that rich people have very smart financial advisors, which is why they have a great advantage.

[Rruchi man]

However, as the zero-sum game, winners will take it all, according to the Pareto principle as well, so after short term effects from retail investors, whales will accumulate Bitcoin again, and they will own 80% of Bitcoin on the network again.

Every retail investor must train himself/herself to understand and analyze whale movements, behaviours and signals, major events, and news if they want to be ahead of the game. Retail investors are able to anticipate and properly analyze the manipulative and non-manipulative market moves of whales, to prevent unnecessary reactions. In this case, familairity with on-chain analysis is crucial and Glassnode is a fantastic tool that makes life easy for the retail investor.

[AverageGlabella]

However, as the zero-sum game, winners will take it all, according to the Pareto principle as well, so after short term effects from retail investors, whales will accumulate Bitcoin again, and they will own 80% of Bitcoin on the network again.

Every retail investor must train himself/herself to understand and analyze whale movements, behaviours and signals, major events, and news if they want to be ahead of the game. Retail investors are able to anticipate and properly analyze the manipulative and non-manipulative market moves of whales, to prevent unnecessary reactions. In this case, familairity with on-chain analysis is crucial and Glassnode is a fantastic tool that makes life easy for the retail investor.

How can you study something that has different affects on the price? The Covid pandemic created economies to plummet and everyone thought that Bitcoin would dump because of it but it pumped after the pandemic started and then a couple of months ago when we have been in the pandemic for over a year it started to dump.

[tranthidung]

Every retail investor must train himself/herself to understand and analyze whale movements, behaviours and signals, major events, and news if they want to be ahead of the game. Retail investors are able to anticipate and properly analyze the manipulative and non-manipulative market moves of whales, to prevent unnecessary reactions. In this case, familairity with on-chain analysis is crucial and Glassnode is a fantastic tool that makes life easy for the retail investor.

Sometimes and with Bitcoin, being simple will help you get profit from your investment. People who bought Bitcoin in 2013 (8 years ago) don't have to understand or know any on-chain analysis to see Bitcoin at $64k.

It is not a good financial advice if I say you only have to buy Bitcoin, and don't mind anything happen in 8 years. Because it is your money and your life. However, if you buy 1 Bitcoin, you can take care of your 0.9 Bitcoin for market movements (daily, weekly, monthly or quarterly -- depends on your short term or long term investment). For the 0.1 Bitcoin, you should forget it, move it to a non-custodial wallet. Keep it for 8 to 12 years later, and let's see.

It would be amazing if in 2032, you can earn more money with just 0.1 reserved BTC than what you have with 0.9 BTC now.

Not my financial advice. 

[BlackHatCoiner]

Smart, lucky and adaptive people are whales.

I don't believe that many people became rich with having Bitcoin in their possession. They may surely be smart, lucky and adaptive, but only a fool would believe that Bitcoin would reach to $64,000 back in 2010-2013. If you were to told them, I'm sure they'd laugh on you.

Bitcoin made rich those who had lost Bitcoins and found them later. The ones who became rich with Bitcoin, became mainly by accident and not due to their own crisis.

[tranthidung]

Smart, lucky and adaptive people are whales.

I don't believe that many people became rich with having Bitcoin in their possession. They may surely be smart, lucky and adaptive, but only a fool would believe that Bitcoin would reach to $64,000 back in 2010-2013. If you were to told them, I'm sure they'd laugh on you.

Bitcoin made rich those who had lost Bitcoins and found them later. The ones who became rich with Bitcoin, became mainly by accident and not due to their own crisis.

I know and I stated it

It is not a good financial advice if I say you only have to buy Bitcoin, and don't mind anything happen in 8 years. Because it is your money and your life.

If you, ie. invest in Bitcoin with your money, and you have believe that is backed by knowledge, allocate 10% or 5% of your Bitcoin for 10 or 20 years later is not bad.

That allocation is small in your total portfolio and it is better than any lottery ticket.

People believe history repeats with cycles, but they don't try to believe in 5% or 10% allocation as Bitcoin lottery ticket. Let's check min yearly price.

Code:

     +---------------------------------+
     | year     min_l   percent_change |
     |---------------------------------|
  1. | 2013     65.53                . |
  2. | 2014     289.3           341.48 |
  3. | 2015    171.51           -40.72 |
  4. | 2016    354.91           106.93 |
  5. | 2017    755.76           112.94 |
     |---------------------------------|
  6. | 2018    3191.3           322.26 |
  7. | 2019   3391.02             6.26 |
  8. | 2020   4106.98            21.11 |
     +---------------------------------+

Assume I owned 10 BTC in 2013, if

• I sold all 10 BTC at $65, I got only $650.
• I sold 9 BTC at $65, I got $585. 10% reserved is 1 BTC, if I sell it anytime this year, I get much bigger than $585
• If I see profit, I am happy if I sell 95% of my BTC. For 5% to 10% left, I don't care even if I lose it

[Wind_FURY]

That’s why I believe education is the answer. We the plebs should first understand the basics of Bitcoin, how and why the incentive structure works, Bitcoin’s value propositions, and how the protocol can be a fall back in case the government loses control of the monetary system. Maybe that would stop our fellow plebs from selling their coins to the billionaires?

Education is not enough because the financial game relates to emotions, psychology, intelligence and adaptation. Education is just part of it and can not change how the crowd behave on the market.

But the difference between truly understanding, and understanding nothing would be a big difference in my opinion. I believe it can start their path into a HODL-type mentality, which can also reduce the emotional stress of HODLing.

The Pareto principle is proved in history, in many areas, not only in financial or crypto market.

In academic research, the principle can be stated as 80% of highly impacted/ cited articles/ researches belong to 20% of top-notch researchers.

OK, I will do my research.

[tranthidung]

But the difference between truly understanding, and understanding nothing would be a big difference in my opinion. I believe it can start their path into a HODL-type mentality, which can also reduce the emotional stress of HODLing.

Education has its importance that I agree with you and everyone. However, in reality, practice is the key and most of people don't listen to advice from experts, especially risk warnings and they learn from their practice, experience.

In financial and crypto market, experience is vital. People can get rich easily with cryptocurrency but if they are not smart and experienced, they will lose their money very fast.

A quick example. In 2016, 79% shares of the US. aggregated wealth belong to the Upper-income. 
Gaps between upper-income & middle- and lower-income households (Pew Research)