Something occurred to me as I read Robert Stevens’ excellent, short article Report: Peak price Bitcoin HODLers have cashed out in Decrypt.
Specifically, 25 words jumped out at me.
Those 25 words made me switch out my originally-scheduled post for this one.
What were those words?
“If someone bought at $100 but hasn’t touched the currency in years, it should not be counted in an assessment of a currency’s overall health.”
A revelation
We include those bitcoins when we calculate market cap and circulating supply—but nobody’s selling them. In fact, the number of unmoved bitcoins has never been higher.
You can see for yourself, courtesy of bitinfocharts:
Do you see that black, vertical line? That’s the number of bitcoins that haven’t moved since August 2014 (almost 4 million of them).
In other words, despite bitcoin hitting all time highs, owners of those wallets sold none of their stash. Not even a satoshi. They didn’t send it to anybody. Didn’t move it to another wallet. Didn’t trade it. Didn’t touch it.
Do these bitcoins belong to the ultimate HODLers? Did the owners lose their keys? Are they representative of the “store of value” everybody’s talking about?
I don’t know. Maybe Craig Wright can shed some light on it.
(Craig, if you’re reading, hit me up on this.)
Four million lost but counted anyway
In 2017, Fortune suggested four million bitcoins are lost, based on a report by Chainalysis, a highly-regarded cryptocurrency research company. Delphi Digital reported similar findings in a separate report.
Essentially, the same thing I said above, except from more established sources.
If you believe this analysis, it means almost one-quarter of all bitcoins are GONE.
Out of circulation. Missing. Absent. गया हुआ. אָבוּד. Perdido.
Yet we still include them as part of bitcoin’s supply.
If we assume nobody will ever buy or sell these unmoved or lost bitcoins, why should we include them when we talk about bitcoin’s scarcity? When we calculate bitcoin’s market cap? When we analyze the market?
Are the numbers right?
Think about any other commodity. We don’t include used or lost products when calculating market value.
When looking at cobalt’s price, nobody includes the cobalt in car batteries, jet engines, and steel. You can’t buy or sell it anymore.
When we think about the U.S. money supply, we don’t include money that’s gone out of circulation. Nobody’s used an eagle-head penny in 150 years, it’s just a collector’s item.
What would happen if instead of assuming we have approximately 18 million bitcoins, we assume only about 14 million? It’s closer to the truth.
Does that change anybody’s analysis?
For the sake of academics and analysts
Based on their metrics for traditional money, some analysts claim bitcoin’s price moves way more extreme than it should compared to the money going in and out of the market at any one time.
These guys train for years to understand money flows, and they can’t explain the discrepancy.
When we over-count bitcoin’s true supply by 22 percent, could that cause those skews? What would happen if we all assume there are 14 million bitcoins instead of 18 million? Would that make the data seem more sensible?
If you work on this matter and have some insight, please let me know. Comment, tweet me @mkhelfman, or email mark@markhelfman.com. I’d love to hear an informed perspective on this.
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Mark Helfman is a top writer on Medium for cryptocurrency, finance, and bitcoin topics. His book, Consensusland, explores the social, cultural, and business challenges of a fictional country that runs on cryptocurrency. In a past life, he worked for U.S. House Speaker Nancy Pelosi.