Bitcoin's Utopian Effects Won't Happen In Your Lifetime

What follows is a little shower thought I had the other week and I finally wrote it down.

The whales will be able to manipulate the markets for decades or centuries without contributing value. The effect could be worse than that of current central banks. Here is why.

It's hard to pinpoint how many people hold Bitcoin.

As of March 2024, there are about 46 million Bitcoin wallets with at least $1 of value.

Of those, 90% are inactive or hold minimal value.

In theory, you also have Bitcoin owners through exchanges. (I know, "Not your keys, not your Bitcoin.")

So as a generous upper bound, let's say there are 100 million people who own Bitcoin.

The world has 8.1 billion humans as of June 2024.

So, at most, 1.2% of people own Bitcoin.

As of 2024, about 19.57 million Bitcoins are in circulation, which is 94% of the total fixed supply of 21 million Bitcoins. This leaves about 1.43 million Bitcoins yet to be mined. Mining will continue until around 2140. It took over 15 years to mine the first 93.19%, but it will take about 116 more years to mine the last 6.81% due to the decreasing rate of production.

For simplicity, we assume no Bitcoin are "lost." In reality, 29% of the total Bitcoin supply has been unused for years. However, it's unclear how much of these Bitcoin are hodled vs. lost.

If Bitcoin became the new reserve currency today, every person would use it. If the last 6.81% of all Bitcoins were evenly distributed across 8.1 billion people, each person would get about 0.00017654 BTC.

The highest recorded inflation for the US dollar since leaving the gold standard was 13.55%. (In recent years, it was 8% in 2022.)

Here's the problem.

The people holding the existing 19.57 million Bitcoin (the "whales") would impact the public similarly or even stronger than central banks do now.

Assume the remaining 1.43 million BTC are distributed among everyone else. The whales could cause 13.55% inflation for at least 20 years.

Here's a table showing the BTC distribution calculations each year based on these initial values and assumptions:

The inflation leads to a complete distribution of the remaining total supply by the end of the 21st year. Each person would receive about 0.00289 BTC by then.

Here's the recalculated table with an inflation rate of 5%:

This scenario continues the distribution of BTC until the end of the 55th year, with the remaining total supply exhausting at that point. Each person would have received about 0.002713 BTC by the end.

Lower inflation rates, like 2% or less, will extend this effect over multiple centuries.

This assumes everyone gets the same money increase. In reality, Bitcoin whales, like central banks, will selectively distribute money, distorting real market signals.

The problem worsens because Bitcoin distribution is highly skewed among existing wallets. The top 0.01% of addresses hold over 58% of all Bitcoin as of February 2024. And 0.5% of addresses own more than 85% of all BTC.

The main point is that 94% of BTC will enter the system over time without creating meaningful value. It's impossible for you to save or build wealth if 13.7 times the total wealth supply will still be injected into the system.