Is active bitcoin supply decreasing? An empirical analysis

Matthew Ambrosia (), John Dorrell () and Thomas Stockwell ()
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Matthew Ambrosia: Catholic University of Pusan
John Dorrell: University of Tampa
Thomas Stockwell: University of Tampa

Journal of Economics and Finance, 2024, vol. 48, issue 4, No 10, 1166-1186

Abstract: Abstract This paper empirically determines if the active supply of Bitcoin is decreasing. Active Bitcoin is the total Bitcoin that has been mined, minus the Bitcoin that has been “lost”. Bitcoin has a fixed supply limit of 21 million. New Bitcoins are constantly being added to the existing supply through a process called mining. This rate of supply is cut in half every four years. However, many Bitcoins have been “lost” and are no longer accessible. The amount of lost Bitcoins is constantly increasing, reducing the amount of supply that is still “active” and accessible. If the rate of loss ever becomes greater than the rate of supply, then active Bitcoin supply would begin to decrease. From this inflection point, the Bitcoin supply would decline from that date forward. Meaning the amount available to be traded would begin to decrease. We utilize comprehensive on-chain data to analyze Bitcoin movement between wallet addresses and determine which coins are active and which coins are “lost”. Bitcoins in dormant wallets are assigned a probability of loss based on the number of years of inactivity and historical probabilities of movement after periods of extreme inactivity. This research helps to quantify the actual amount of Bitcoin that is active and accessible to be spent and traded, which has a profound impact on valuation. The results of this research show that the active supply of Bitcoin turned negative at the halving on April 19th, 2024.

Keywords: Bitcoin; Cryptocurrency; Money; Blockchain; Asset (search for similar items in EconPapers)
JEL-codes: E40 E42 E59 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s12197-024-09691-w

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