For over a decade, Bitcoin has been hailed as the ultimate digital gold, a decentralized alternative to traditional currency systems. Its limited supply of 21 million coins has been a cornerstone of its value proposition, serving as a safeguard against inflation and contributing to its growing popularity among investors.
However, research suggests that the real supply of Bitcoin may be significantly lower than the widely accepted 21 million cap.
A study conducted by leading blockchain analytics firms reveals that a sizable portion of Bitcoin’s supply has been rendered permanently inaccessible. This is due to factors such as : (i)lost private keys, (ii)deceased owners, and (iii)discarded hardware containing substantial amounts of Bitcoin.
As a result, the true circulating supply is estimated to be closer to 14–16 million BTC*, with the remaining coins locked away in digital limbo.
*On 4 May 2023, Glassnode assesses this « real supply » around 14,8 million BTC. The firm uses a « Bitcoin: Adjusted Circulating Supply » metric. The amount of lost coins is estimated by all those that have not moved in over seven years.
The implications of this reduced supply are positive(+) and negative(-) in some aspects:
(+) Increase in price
According to the principle of supply and demand, a decrease in supply leads to an increase in price. This may have the following consequences:
- Individuals and institutions will scramble to acquire a piece of the now even rarer digital asset.
- This rarity will solidify its status as digital gold**.
**It may be interesting to compare some inflation figures between Gold and BTC.
– Gold: Gold’s inflation comes from the increasing supply due to the mining of new reserves. Historically, the inflation rate of gold is around 1,5% to 2% per year. However, unlike BTC, it is not « mathematically certain », and this rate can vary depending on factors such as discoveries of new reserves and technological advancements in the mining industry. [Source: World Gold Council, Gold Demand Trends Reports]
– Bitcoin: the maximum amount of BTC is 21 million. On 4 May 2023, the circulating supply (i.e. BTC which had been already mined) amounts to 19,364,393 BTC. The amount of new BTC created decreases over time due to the halving process, which cuts the mining reward in half approximately every four years. As a result, the Bitcoin’s annual inflation is currently about 1.7%. This inflation rate will continue to decrease until the maximum supply of 21 million Bitcoins is reached, after which there will be no inflations. For a better overview, inflation rate had decreased as follows : 2012 (c.34%), 2015 (c.10%), 2018 (c.4%), 2023 (c.1.8%). [Source: Glassnode, T1 BTC circulating supply & T2 BTC inflation rate]
(-) Wealth concentration
The revelation of a smaller Bitcoin supply also raises concerns about wealth concentration within the network :
- With a significant portion of the existing coins held by a small number of early adopters and so-called ‘whales,’ the accessibility and fairness of the cryptocurrency may come into question.
- This concentration of wealth could potentially make the market more susceptible to price manipulation and exacerbate volatility.
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