Bitcoin scarcity rises as bad exchanges take 1.2M BTC out of circulation

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One of the biggest factors differentiating Bitcoin (BTC) from fiat currency and most cryptocurrencies is the hard limit of 21 million on its total circulating supply. However, the demise of numerous crypto exchanges over the last decade has permanently taken out at least 5.7% (1.2 million BTC) of the total issuable Bitcoin from circulation.

The lack of clarity around a crypto exchange’s proof-of-reserves came out as the primary reason for their sudden collapses, as seen recently with FTX. Historical data around crypto crashes revealed that 14 crypto exchanges, together, were responsible for the loss of 1,195,000 BTC, which represents 6.3% of the 19.2 Bitcoin currently in circulation.

Bitcoin lost due to defunct crypto exchanges. Source: Casa Blog

An investigation conducted by Jameson Lopp, co-founder and CTO of Bitcoin storage platform CasaHODL, revealed that Mt. Gox maintains the top position when it comes to exchanges losing BTC holdings.

While the scarcity of Bitcoin is directly related to its value as an asset, Lopp pointed out that fake Bitcoin offerings currently threaten the ecosystem, adding that “Bitcoin will not be a great store of value if most people are buying fake bitcoin.” Investigations confirm that at least 80 crypto assets have “Bitcoin” in their names, aimed purely to mislead BTC investors.

As a result, investors purchasing fake Bitcoin assets negatively impact the price appreciation of the original Bitcoin.

To ensure Bitcoin’s position as sound money, self-custody comes out as the most effective way to reduce reliance on crypto exchanges and corporate “paper Bitcoin” contracts.

Related: Blockstream CEO Adam Back talks Bitcoin over a game of Jenga

Salvadorean President Nayib Bukele announced plans to acquire 1 BTC every day starting from Nov. 17, 2022.

Public records show that El Salvador currently holds 2,381 BTC at an average buying price of $43,357. However, stagnant Bitcoin performance opened up a window of opportunity for the country to substantially bring down its average price of Bitcoin acquisition.