The speed of awakening of dormant wallets will accelerate in the future, and the final amount of lost bitcoins will stabilize at around 1.5 million.
On April 15th, a dormant Bitcoin wallet that had been inactive for 14 years woke up. The wallet owner sent 50 bitcoins to Coinbase and made a profit of over $3 million from these previously worthless bitcoins. While such transactions are rare, they are not unique. Almost every week, early Bitcoin wallets are being awakened, raising the question of how many speculated lost bitcoins can be put back into circulation. A new investigation by Fortune and Chainalysis provides some insights.
As shown in the chart above, hundreds of thousands of “lost” bitcoins (defined by Chainalysis as bitcoins that have remained untouched since 2014) have been put back into circulation in recent years. The chart shows the net changes in the total amount of bitcoins in four different categories of wallets, including wallets holding less than 50 bitcoins and wallets holding 1,000 bitcoins or more. The “less than 50” category accounts for the vast majority of old Bitcoin wallets, as shown in the chart below.
Both charts indicate that the number of old wallets containing 50 bitcoins is disproportionate. This reflects the fact that in the early days of Bitcoin, the block reward was 50 bitcoins. (Since then, a series of “halving” events have reduced the reward to 25, 12.5, and 6.25 bitcoins, and just last week, the reward was reduced to 3.25 bitcoins).
Currently, the amount of bitcoins mined per day is less than 10% of the early days. Early wallets, many of which hold substantial wealth, may attract more interest.
$121 billion
Those who only occasionally take an interest in cryptocurrencies may be surprised to learn that there are approximately 1.75 million Bitcoin wallets that have been completely dormant for ten years or more, many of which hold a significant amount of funds. As of mid-March, these wallets (excluding the approximately 30,000 wallets associated with Bitcoin founder Satoshi Nakamoto) contain 1,798,681 bitcoins, valued at around $121 billion today.
These 1.8 million “lost” bitcoins account for about 8.5% of the total Bitcoin supply of 21 million (93% of which has already been mined). In most cases, it is impossible to know the exact whereabouts of a wallet, but it is certain that many bitcoins are indeed permanently lost. In the early days of Bitcoin, this cryptocurrency was virtually worthless until its price surpassed $1 in 2011. Therefore, many recipients of bitcoins may have completely forgotten about them or did not bother to store the private keys required to access the wallets. Companies like Coinbase, which store private keys for users, did not exist before 2012, making the loss of keys particularly common.
However, not all idle wallets have been lost or abandoned. Bitcoin is known for its large “HODLers” who pledge to never sell their reserves or at least hold them for the long term. It is these individuals (referred to as “diamond hands” in cryptocurrency jargon) who manage the few active wallets since 2018.
So why would they sell? Chainalysis’ analysis of newly active wallets found a statistically significant correlation between Bitcoin price changes and wallet activity in specific weeks. However, most of the time, increased wallet activity seems unrelated to any obvious external events.
Overall, the speed of activation of old wallets seems predictable. For example, during the week of March 25th, a typical pattern emerged with 172 long-dormant wallets becoming active, with less than 50 bitcoins in 169 wallets and over 1,000 bitcoins in one wallet. Many Bitcoin holders have more than one wallet, especially those who owned wallets before 2014, so the number of wallet activations that week may be much lower than 172.
Variable: Satoshi Nakamoto’s 1.1 million bitcoins
Chainalysis’ data suggests that old wallets will continue to be awakened at a steady but slow pace until the number of lost bitcoins stabilizes at around 1.5 million. However, we can imagine that the speed of wallet awakening will accelerate in the future. This could happen when the early HODLers from before 2014 grow older and pass on their long-held bitcoins to their children, who may then sell them. However, such events will still take decades to occur since most early Bitcoin holders are only in their 20s or 30s.
Finally, the aforementioned number of “lost” bitcoins does not include the wallets controlled by Satoshi Nakamoto. According to Chainalysis’ estimate, Nakamoto owns around 1.1 million bitcoins. A recent report by Fortune magazine on Nakamoto’s fortune (worth about $75 billion) found that most people who have long been interested in cryptocurrencies believe that the Bitcoin creator has become a myth and is unlikely to ever touch his wallets.
If that’s the case, the current total of lost bitcoins is approximately 2.9 million, accounting for nearly 14% of the total supply. In the long run, the best outcome is for these bitcoins to become forever undiscovered lost treasures.
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