The awakening of dormant wallets will accelerate in the future, and the number of lost bitcoins is expected to 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, making a profit of over $3 million from these once worthless bitcoins. While such transactions are uncommon, they are not unique. Almost every week, early bitcoin wallets are being awakened, raising the question of how many speculated lost bitcoins can be reintegrated into circulation. A new survey by Fortune and Chainalysis provides some insights.
As shown in the chart, hundreds of thousands of “lost” bitcoins (defined by Chainalysis as bitcoins that have remained untouched since 2014) have been reintegrated into circulation in recent years. The chart illustrates the net changes in the total amount of bitcoins in four different wallet categories: wallets holding less than 50 bitcoins and wallets holding 1,000 bitcoins or more. The “less than 50 bitcoins” category represents the vast majority of old bitcoin wallets.
Both charts indicate that the number of wallets containing 50 bitcoins is disproportionate. This reflects the fact that in the early days of bitcoin, the block reward was 50 bitcoins. (Subsequently, a series of “halving” events reduced the reward to 25, 12.5, 6.25 bitcoins, and just last week, the reward was reduced to 3.25 bitcoins.)
Currently, the daily production of bitcoins is less than 10% of what it was in the early days. Early wallets, many of which hold substantial wealth, may attract more interest.
Those who are only occasionally interested in cryptocurrencies may be surprised to learn that approximately 1.75 million bitcoin wallets have been completely dormant for ten years or longer, many of which hold significant funds. As of mid-March, these wallets (excluding the approximately 30,000 wallets associated with bitcoin creator Satoshi Nakamoto) contained 1,798,681 bitcoins, worth around $121 billion today.
These 1.8 million “lost” bitcoins account for about 8.5% of the total bitcoin supply of 21 million (of which 93% has already been mined). In most cases, it is impossible to know the exact whereabouts of a specific wallet, but it is certain that many bitcoins have indeed been lost forever. 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 their wallets. Companies like Coinbase, which store users’ private keys, did not exist before 2012, so cases of lost keys were particularly common.
However, not all idle wallets have been lost or abandoned. Bitcoin is known for its large “HODLers,” who pledge never to sell their reserves or at least hold them for the long term. It is these individuals, who have “diamond hands” in cryptocurrency terms, who manage the few active wallets since 2018.
So why would they start selling? Chainalysis’ analysis of newly active wallets found a statistically significant correlation between bitcoin price changes and specific weeks of wallet activity. However, most of the time, increased wallet activity appears to be unrelated to any significant external events.
Overall, the activation speed of old wallets seems predictable. For example, in the week of March 25th, a typical pattern emerged with 172 long dormant wallets becoming active, including 169 wallets with less than 50 bitcoins and one wallet with over 1,000 bitcoins. Many bitcoin holders have more than one wallet, especially those who owned wallets before 2014, so the number of people activating wallets that week may be much lower than 172.
Chainalysis’ survey data suggests that old wallets will continue to be awakened at a stable but slow pace until the number of lost bitcoins stabilizes at around 1.5 million. However, it is imaginable that the speed of wallet awakenings will accelerate in the future. This could occur when HODLers from before 2014 grow older and pass down their long-held bitcoins to their children, who may then sell them. However, such events will still take decades, as 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 approximately 1.1 million bitcoins. A recent report by Fortune magazine on Nakamoto’s wealth (estimated at around $75 billion) found that most people who have long been interested in cryptocurrencies believe that the bitcoin creator has become a myth and is highly unlikely to ever access their own wallet.
If that is indeed 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 that these bitcoins become forever undiscovered treasure.
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