Supply concentration risk describes the potential for price manipulation or market instability when a significant portion of a digital asset’s supply is held by a small number of entities. Such concentrated holdings can lead to sudden price movements if these large holders decide to sell or move their assets. It represents a vulnerability to market liquidity and fairness. This risk is particularly relevant in markets with lower liquidity.
Context
Analysts and news outlets frequently discuss supply concentration risk as a concern within certain digital asset markets, particularly for newer or smaller projects. Reports often highlight on-chain data to assess the distribution of asset holdings among whales or large institutional wallets. Addressing this risk is crucial for fostering fair market conditions and investor confidence.
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