Bitcoin’s Missing 23 Percent Problem

Its expected that 21 million Bitcoins will have been mined by 2040, but the amount available to spend and trade will be a lot lower, according to recent reports from Fortune.

In fact, between 2.78 million and 4 million Bitcoin have disappeared already, implying 17 to 23 percent are already gone, according to new research from digital forensics firm Chainalysis. Each Bitcoin is valued at approximately $8,500 as of Saturday, Nov. 25.

Researchers have long made guesses as to how much of the cryptocurrency is gone, but Chainalysis’ findings rely on an empirical analysis of blockchain, the underpinnings of Bitcoin. The results reflect Bitcoins that have been lost completely — in the process of taking coins out of circulation, hoarding coins, buying and selling coins and strategic investments, among other factors — not those stolen by hackers or other bad actors.

The research shows that going forward more Bitcoins will be lost, but the rate will slow compared to the past because the cryptocurrency is more valuable. The new research also raises the question of whether the missing coins are already priced into the value of Bitcoin.

“That is a very complex question,” said Chainalysis CEO Jonathan Levin. “On the one hand, direct calculations about market cap do not take lost coins into consideration. Considering how highly speculative this field is, those market cap calculations may make it into economic models of the market that impact spending activity. Yet the market has adapted to the actual demand and supply available — just look at exchange behavior. Furthermore, it is well known monetary policy procedure to lower or increase fiat reserves to impact exchange rates. So the answer is yes and no.”

Chainalysis is an important player in the world of Bitcoin research, counting both the Internal Revenue Service (IRS) and Europol as clients. Law enforcement often turns to the company to obtain detailed information on how the digital payment method moves around and who owns it.