According to research conducted by cryptocurrency-focused digital forensics company Chainalysis, at least 2.78 million bitcoins are forever lost on the Bitcoin blockchain network. This number could even be as high as 3.79 million bitcoins.
Calculating Non-Circulating Coins
At today’s market price, 2.78 million bitcoins are equivalent to roughly $26.4 billion, given that the price of bitcoin has increased nearly 37 percent, from $6,000 to $9,500 in the past month.
Using empirical data provided by the transparent Bitcoin network, the Chainalysis research team calculated the number of bitcoins that are “out of circulation.”
It should be noted that lost bitcoins do not account for stolen funds on cryptocurrency exchanges and trading platforms. Technically hackers that successfully steal cryptocurrencies from centralized platforms have access to the stolen resources and thus can recirculate their bounty.
In an interview with Fortune, Kim Grauer, a senior economist at Chainalysis, stated that the amount of lost bitcoins is often dismissed in evaluating the market cap of bitcoin. As of current, the market valuation of bitcoin amounts to $163 billion. But, Grauer emphasized that the current market cap of bitcoin does not consider the bitcoins that are no longer accessible on the Bitcoin blockchain.
Hence, the supply of actual bitcoins that are circulating within the market is lower, even though the demand for the cryptocurrency is increasing at an exponential rate.
Grauer unraveled the non-inclusive market samples as follows,
“That is a very complex question. On the one hand, direct calculations about market cap do not take lost coins into consideration. Considering how highly speculative this field is, those market cap calculations may make it into economic models of the market that impact spending activity. Yet the market has adapted to the actual demand and supply available – just look at exchange behavior. Furthermore, it is well known monetary policy procedure to lower or increase fiat reserves to impact exchange rates. So the answer is yes and no.”
Onwards & Upwards
Based purely on the supply and demand of bitcoin, proponents of the digital currency can argue that bitcoin is undervalued at current. If we consider that the actual amount of bitcoins circulating the global market is significantly lower than the maximum supply of bitcoin of 21 million, then once the limit is reached prices should rise steadily.
Another Chainanalysis spokesperson revealed that the execution of the Bitcoin Cash hard fork in August provided more clarity and increased the accuracy of the study’s findings. The hard fork triggered inactive wallets to conduct transactions to transfer or sell-off Bitcoin Cash and thus provide more data points.
Grauer also noted that the response from several figures from the bitcoin industry to whom Chainalysis revealed their findings came as a surprise to the team, as the study raised an important question in regards to bitcoin’s deflationary policy.
“Firstly, we floated our findings to a few people, and they all had different reactions about how surprising the figure was. But what I found most surprising/interesting was how when you unpack what it means to be ‘lost’ things get even more confusing,” Grauer added.