- The price of Bitcoin can rise over time as more tokens are “burned” after being lost.
- When an investor dies or simply loses their Bitcoins by being locked out of their wallet, the available supply decreases.
- Experts say wealth planning is crucial for Bitcoin investors who store their coins in cold wallets.
A widening trade deficit, a $35 trillion debt mountain, and a consistent loss of purchasing power for the US dollar have long been heralded as key pillars of the Bitcoin bull case.
Even President Donald Trump’s likely victory in November has been blamed on cryptocurrencies’ recent bullish behavior.
The world's largest cryptocurrency is just a few percentage points away from hitting a new all-time high.
However, there is a structural bullish case that is less talked about, even though it could have a considerable impact on Bitcoin's long-term price. That is, tokens are lost upon death or simply poor planning.
The debate recently arose in the wake of the recent uproar over the possible unmasking of Bitcoin's pseudonymous creator Satoshi Nakamoto in an HBO documentary released this month. Before the premiere, there was a theory that their true identity was Len Sassaman, an American computer programmer who passed away in 2011.
Satoshi Nakamoto's death may allay a major fear that has been creeping into the Bitcoin market for years: that the man could sell an estimated 1 million Bitcoins.
This represents a significant percentage of the 21 million Bitcoins that will ever exist, and such a large sell-off has long been feared as a bearish event for the token.
If Satoshi did not leave proper instructions to transfer his assets upon his death, the fixed supply of 21 million Bitcoins would likely become closer to 20 million.
Sean Farrell, head of digital asset strategy at Fundstrat, highlighted the move in a note earlier this month.
“If the deceased person is identified, there is a slight upside risk as Satoshi's supply will effectively be 'burned out' forever,” Farrell said.
“Bitcoin's true float is definitely below 21 million units,” Farrell told Business Insider. “Everyone knows this to be true, but it's nearly impossible to verify.”
That's also because it's relatively easy to lose Bitcoin even if you're alive.
Lost Bitcoin essentially “burns” Bitcoin, reducing the amount investors can buy, reinforcing the fundamental economic principle that when supply decreases, the price will rise even if demand remains constant or increases. .
Approximately 1.5 million Bitcoins, or about 7.5% of the total supply, have moved since the first Bitcoin exchange opened in 2010, about a year after Bitcoin was created, Farrell said. We estimate that it may be considered “probably lost'' because it has not been recorded.
A 2021 New Yorker article about a Welsh man who lost a trove of bitcoins worth around $500 million at the time after accidentally throwing his hard drive containing his stash of bitcoins into the garbage.
“It will probably only take time to understand how much of the Bitcoin supply has been lost,” Farrell said.
Sophisticated investors who own large amounts of Bitcoin often store their cryptocurrencies in encrypted cold wallets to protect them from hacking.
In cases like this, it means Bitcoin is not stored at an exchange like Coinbase that has a recovery process for the families of deceased customers.
Rather, they are usually stored on physical USB drives, which seem pointless to the unassuming eye and can easily be lost or looked around while cleaning the property.
Bitcoin's decentralized nature means that no bank or authority can access or recover your assets without your wallet or hard drive's private keys.
“Unlike traditional financial accounts, there is no institution you can contact to recover your cryptocurrencies. If no one has your private keys, your funds are locked forever,” said Eric Lemieux, CEO of Weltica. told Business Insider.
He added: “If you store your Bitcoin in a cold wallet and die without giving anyone access to your private recovery key or recovery phrase, your Bitcoin may be lost forever.”
Lemieux said it's essential for Bitcoin investors who hold their assets in cold wallets to have their estate plan “including a private key, recovery phrase, or securely stored encrypted document through an attorney.”
Otherwise, more Bitcoins may be lost and the price of the cryptocurrency may rise further.