Bitcoin Forks Have Millions of Dormant/Lost Coins Raising Market Capitalization Questions

Bitcoin Forks Have Millions of Dormant/Lost Coins Raising Market Capitalization Questions

By TheDesertLynx | Digital Cash Network | 11 Sep 2020


Over 23% of the coin supply of the major Bitcoin forks has not moved in the past five years. These may indicate irrecoverable coins, which may increase Bitcoin's scarcity and can raise questions as to the relevance of prominent market capitalization valuation methods.

According to data from BitInfoCharts, 4.02 million Bitcoins reside in dormant addresses and have not moved in the past five years. This accounts for about 21.9% of the current total supply of Bitcoin, and about 19.2% of the eventual total supply. These statistics are similar though slightly larger for the major forks, with 4.3 million (23%) of Bitcoin Cash and 4.33 million (23.38%) of Bitcoin SV's current supply. About 3.17 million Litecoin (4.8%) have not moved in the past five years, as well as 386,840 (3.9%) Dash. An additional consideration for Dash is that major holders are incentivized to not move coins frequently, as holding 1,000 units of Dash in a static address is required to operate a masternode and receive a portion of the block reward.

While coins that have not been moved in a half-decade cannot be definitively assumed as permanently inaccessible, their effects may be felt in the market price of the coin. A more limited supply makes the asset more scarce, which can drive up valuations, while unmoving coins are also unable to be sold on exchanges and cause negative price pressures. Additionally, while potentially driving up market prices through scarcity, lost coins are nonetheless counted in the total supply, giving a market capitalization total that reflects the effects on the unit price of having a more scarce asset while not reflecting this scarcity in the total supply.

Over a million Bitcoin Cash haven't moved since the split from Bitcoin

Over a five-year period the supply of dormant coins of Bitcoin, Bitcoin Cash, and Bitcoin SV remain relatively close. However, when the time frame is adjusted to three years, 5.56 million Bitcoins have not moved during that period. Bitcoin Cash and Bitcoin SV claim 6.58 and 6.57 million, respectively, coins that have not moved in the past three years, a disparity of over a million coins.

The Bitcoin Cash fork split off from Bitcoin in August of 2017, about three years ago at time of writing. This discrepancy of over one million dormant coins over this time period may be explained by Bitcoin holders never claiming their Bitcoin Cash after the split in 2017, with unclaimed coins representing a similar effect to lost coins in practice. This would also explain why the disparity between the dormant supply of Bitcoin and that of its forks changes significantly when examining a three-year period over a five-year period.

Additional coin metrics bring more accuracy to valuations

As the cryptocurrency industry matures, additional metrics shed new light on detailed information on projects, giving tools to form a more accurate picture of the true value of each coin. In addition dormant coin statistics, fair value calculations attempt to discover a new valuation based on current economic use of each respective project. This may provide some insight into causes of disparities between speculative and fair value, including bearish sentiment of a coin despite relatively higher economic use, bullish sentiment for an exciting project that has not yet built a large ecosystem but whose technology appears promising, and simple misconceptions about a project's real use.

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Crypto and liberty lover. Journalist. Living unbanked off of crypto since 2016. Free State Project mover. Opinions are my own.

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