Early wallets are constantly awakening. How many of the 1.8 million "lost" bitcoins have really disappeared?

Author: Jeff John Roberts, Fortune Magazine

Compiled by: Luffy, Foresight News

On April 15, a Bitcoin wallet that had been dormant for 14 years awakened. The wallet owner sent 50 Bitcoins to Coinbase, profiting over $3 million from these once worthless Bitcoins. Such transactions are rare but not unique. Early Bitcoin wallets awaken almost every week, raising the question: how many speculated lost Bitcoins can be re-circulated? A new survey by Fortune and Chainalysis provides some insights.

The chart shows the change in the number of lost Bitcoins since 2018

As shown in the chart above, hundreds of thousands of "lost" Bitcoins (defined by Chainalysis as Bitcoins that have been inactive since 2014) have been re-circulated over the past few years. The chart displays the net change in the total amount of Bitcoins in four different wallet sizes, including wallets holding fewer than 50 Bitcoins and those holding 1,000 or more Bitcoins. The "less than 50" category accounts for the vast majority of old Bitcoin wallets, as shown in the chart below.

The chart shows the breakdown of lost Bitcoin wallets

Both charts indicate a disproportionate number of old wallets containing 50 Bitcoins. This reflects the fact that in the early days of Bitcoin, the block reward was 50. (Subsequently, a series of "halving" events reduced the reward to 25, 12.5, and 6.25 Bitcoins, and just last week, the reward decreased to 3.25 Bitcoins).

Currently, the number of Bitcoins mined daily is less than 10% of what it was in the early days, and early wallets (many of which contain vast wealth) may attract greater interest.

$121 Billion

Those who are only occasionally interested in cryptocurrency may be surprised to learn that approximately 1.75 million Bitcoin wallets have been completely dormant for ten years or more, many of which contain significant funds. As of mid-March, these wallets (excluding about 30,000 wallets associated with Bitcoin's creator, Satoshi Nakamoto) contained 1,798,681 Bitcoins, now worth about $121 billion.

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 exactly what happened to a particular wallet, but it is certain that many Bitcoins in these wallets are indeed permanently lost. In the early days of Bitcoin, this cryptocurrency was virtually worthless, and it wasn't until 2011 that Bitcoin's price broke the $1 mark. Therefore, many who received Bitcoins may have completely forgotten about them or did not bother to save the private keys needed to access their wallets. Before 2012, companies like Coinbase that managed private keys for users did not exist, making the loss of keys particularly common.

However, not all dormant wallets are lost or abandoned. Bitcoin is known for its large number of "HODLers," who vow never to sell their reserves (or at least to hold them for the long term). It is these individuals (in cryptocurrency terms, they have "diamond hands") who manage the few wallets that have been active since 2018.

So why do they sell? Chainalysis's analysis of newly active wallets found a statistically significant correlation between Bitcoin price changes and wallet activity in specific weeks. However, most of the time, increases in wallet activity seem unrelated to any apparent external events.

Overall, the activation rate of old wallets appears predictable. For example, during the week of March 25, a typical pattern emerged where 172 long-dormant wallets became active, with 169 of those wallets containing fewer than 50 Bitcoins and one wallet containing over 1,000 Bitcoins. Many Bitcoin holders own more than one wallet, especially those who had wallets before 2014, so the actual number of individuals activating wallets that week may be far less than 172.

Variable: Satoshi's 1.1 Million Bitcoins

Chainalysis's survey data suggests that old wallets will continue to awaken at a steady but slow pace until the number of lost Bitcoins stabilizes, likely around 1.5 million.

However, we can imagine that the pace of wallet awakenings may accelerate in the future. This could happen when HODLers from before 2014 age and bequeath their long-held Bitcoins to their children, who may then sell these Bitcoins. However, such events are still decades away, 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, who is estimated by Chainalysis to hold about 1.1 million Bitcoins. A recent report by Fortune magazine on Satoshi's wealth (valued at about $75 billion) found that most long-term cryptocurrency watchers believe this Bitcoin creator has become a myth and is very likely to never move their wallets.

If this is the case, then the current total of lost Bitcoins is about 2.9 million, accounting for nearly 14% of the total supply. In the long run, the best outcome is that these Bitcoins become a lost treasure that can never be found.