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Cryptocurrency News Articles
Bitcoin's Lost and Unclaimed Tokens Could Be a Secret Bull Case for the Cryptocurrency
Oct 19, 2024 at 08:30 pm
Widening trade deficits, a $35 trillion pile of debt, and the consistent loss of the US dollar's purchasing power have long been heralded as the key pillars of the bitcoin bull thesis.
As bitcoin trades within a few percentage points of a fresh all-time high, there's a bull case that doesn't get talked about much, despite having a potentially large impact on the cryptocurrency's long-term price.
The total supply of bitcoin that will ever exist is capped at 21 million. A key part of the cryptocurrency's bull thesis is that less supply and constant or increasing demand will lead to higher prices.
But there's a structural dynamic that could be decreasing the available supply of bitcoin even further than the 21 million that is widely touted. Some portion of the bitcoin that has been mined is likely getting lost.
This happens when people lose their private keys, or the bitcoin is otherwise rendered inaccessible — for example, if someone dies without leaving instructions on how to transfer their crypto holdings.
A recent story in The New Yorker profiled a man in Wales who lost a trove of bitcoin that, at the time, was valued at around $500 million. He accidentally threw a hard drive containing his bitcoin stash in the dump.
"It is probably only with the passage of time that we can get a sense for just how much of the bitcoin supply has been lost," Fundstrat's Farrell said.
Relative to other assets, bitcoin is unique in that it doesn't pay out dividends or interest, and there's no central authority minting new tokens to adjust the supply and demand dynamic. Instead, the supply is fixed at 21 million.
This characteristic has led some investors to liken bitcoin to a digital gold, and they point out that the precious metal also has a fixed supply. But there's a key difference.
"If someone loses their gold bar at the bottom of a lake, it is still gold and can be recovered at a later date," Farrell said. "Bitcoin that is lost is essentially 'burned' for good."
"This lost bitcoin dynamic is a bullish asymmetry that is not fully appreciated by the market," he added.
Fundstrat's Farrell estimates that 1.5 million bitcoins, or about 7.5% of the total supply, could be deemed "probably lost" because they haven't moved since the launch of the first bitcoin exchange in 2010.
This estimation is likely on the conservative side, as there's no way to know for sure how much bitcoin is truly lost, he said. A large portion of bitcoin that was mined early on is still sitting on the sidelines today.
"Bitcoin's true float is undoubtedly below 21 million," Farrell told Business Insider. "This is something that we all know to be true but is nearly impossible to verify."
Many sophisticated investors who own a large amount of bitcoin often opt to store the cryptocurrency on encrypted cold wallets to protect against hacks.
In these cases, that means the bitcoin is not held on an exchange like Coinbase, which has a recovery process for family members of deceased customers.
Rather, it's typically held on a physical USB drive that could look meaningless to an unassuming eye and get easily lost or looked over in the shuffle of cleaning up an estate.
Bitcoin's decentralized nature also means no bank or authority can access or recover the assets without the private key to the wallet or hard drive.
"Unlike traditional financial accounts, there is no institution to contact to recover your cryptocurrency. If no one has your private key, the funds will be locked permanently," Wealthica CEO Eric Lemieux told Business Insider.
He added: "If you store your bitcoin in a cold wallet and die without giving someone access to your private recovery keys or recovery phrases, the bitcoin could be lost forever."
According to Lemieux, it is imperative for bitcoin investors who hold the asset on a cold wallet to ensure that their estate planning "includes your private key or recovery phrase through a lawyer or encrypted document stored securely."
"This will ensure that, in the event of your passing, your heirs will be able to access and claim your bitcoin," he said.
Otherwise, more lost bitcoin could mean even higher prices for the crypto.
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