Bitcoin May be Significantly Undervalued, as 3.79 Million of Supply is Not Spendable

3.79 million bitcoin is estimated to be lost permanently on the public blockchain. Given that nearly 20% of its supply is unspendable, bitcoin is currently undervalued.

At the time of reporting, the market valuation of bitcoin is at around $196 billion. The price of bitcoin is calculated by dividing the market cap with its circulating supply of 16.72 million.

But, according to a study conducted by bitcoin blockchain-focused digital forensics firm Chainalysis, approximately 3.79 million, or $43.5 billion worth of bitcoin are permanently lost on the public blockchain of bitcoin. Thus, while the official circulating supply of bitcoin is 16.72 million, the actual supply of bitcoin is closer to 13 million.

Given that the real supply of bitcoin considering the bitcoin that are not spendable or accessible on the bitcoin blockchain is 13 million, the price of bitcoin should be in the range of $15,000. As of current, bitcoin is being traded in the $11,500 region across many exchanges.

On whether the market has priced the unspendable coins to provide the market valuation of bitcoin, Chainalysis senior economist Kim Gauer stated:

“That is a very complex question. 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.”

Unlike fiat currencies, bitcoin is a decentralized and a deflationary currency. Bitcoin that is lost on its public blockchain cannot be recovered, as there exists no central authority and entity. Although some may consider the lack of a central entity to be a disadvantage, the decentralized nature of bitcoin ultimately benefits its users by providing financial privacy, freedom, and most importantly, independence.

As seen in the arrest and seizure of assets of Saudi prince Miteb bin Abdullah, financial independence is crucial for any investor as it eliminates the power of governments and authorities to unlawfully and wrongfully confiscate assets and seize wealth.

Investors such as major US-based electronics retailer Overstock CEO Patrick Byrne believe that bitcoin is better than gold and fiat currencies like the US dollar, because users have absolute control over their money and wealth.

“You think that’s a bubble? What do you think that fiat currency you carry around in your purse is?” Byrne told Maria Bartiromo. “This dollar stuff, it’s just some fiat currency based on … the surplus taxing authority of the U.S. Treasury of which I assert there is zero … It’s about time the world switches to real money. Either gold or bitcoin,” said Byrne.

In the long-term, as the supply of bitcoin max out to 21 million, the large number of bitcoins that are out of circulation and unspendable will add value to the current exchange rate of bitcoin.

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