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Bitcoin prices soar. but danger looms
Cryptocurrencies including Bitcoin, Ethereum, and Lightcoin have seen unprecedented growth in 2017, despite remaining extremely volatile. While digital currencies across the board have divided opinion between financial institutions.
Dan Kitwood—Getty Images

Considering getting into bitcoin as prices soar above $15,500? It's not hard to see why—the asset has gained $8,000 in the last month.

But realize this about the historically volatile currency: An estimated 1,000 people own about 40% of the world's total bitcoin, for an average of about $105.6 million per person, according to Aaron Brown, formerly of AQR Capital Management, per Bloomberg Businessweek.

That's in part a lucky pool of investors who bet on a cryptocurrency strongly linked to the dark net just a few years earlier. But newer bitcoin investors trying to jump on board should be aware: That also means those 1,000 or so people have outsized ability to influence bitcoin prices. That's potentially even more risky considering bitcoin's value isn't based on any underlying asset, but rather largely on human sentiment.

“As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, told Bloomberg.

It's likely that at least some of these owners already know each other, having probably gone into bitcoin at a time when mining the cryptocurrency was easier and there were fewer people involved. (The process by which new bitcoins are released is called mining. Because of the way bitcoin works, mining the cryptocurrency becomes increasingly difficult as time goes on.)

Consider the so-called "father of bitcoin," the pseudonymous Satoshi Nakamoto, who began mining bitcoin when the software to mine the coins first became available in 2009. An account that is likely his now contains about 980,000 bitcoins, worth roughly $15.2 billion. That's about 5% of all bitcoins currently in circulation.

Meanwhile, because bitcoin is so new, regulators are still scratching their heads over how to manage the industry. That means, unlike with securities, large investors currently don't have to disclose their bitcoin ownership, further mudding the waters.

Correction: The original version of this story incorrectly described Aaron Brown. He is a writer who used to worker at AQR Capital Management, he does not currently work there.