Of all the ways to use $8 million in Bitcoin, why burn it?
As ridiculous as it may sound, someone did just that with a treasure trove of digital gold on May 25.
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Data on Bitcoin’s public ledger shows five transactions where one entity transferred 107 BTC to the well-known “burn address” 1111111111111111111114oLvT2 (1).
In crypto, “burning” means locking your digital assets and tossing away the key. Even though you can see where the coins are on the blockchain, burn addresses don’t have the credentials a user needs to access crypto once they’re sent there.
The Bitcoin burn address has been active since 2010 and has accumulated hundreds of BTC over the years. With the recent 107 BTC deposit, there’s now 807 BTC — or approximately $58 million at the time of writing — now sitting there (2).
The wallets that burned these 107 BTC were created back in 2014 when Bitcoin was trading well below $1,000 (3). So, even with Bitcoin’s recent dip from about $120,000 to the $70,000 range, whoever destroyed their Bitcoin figuratively burned money.
What’s behind this Bitcoin bonfire?
Unless the owner of the bitcoin comes forward, it’s impossible to know their motive. Even without evidence, social media spectators are chiming in with wild theories.
The crypto investment firm Galaxy Digital published the most extensive list of reasons on X (4).
First, maybe this was a way to manage capital gains taxes. Since these Bitcoins were so old, the owner would have had to pay a lot to tax authorities if they had swapped them for cash or other assets. So, perhaps the mysterious sender deliberately destroyed their BTC to use for “tax-loss harvesting” and offset even bigger gains elsewhere (4).
Alternatively, Galaxy suggested a more macabre scenario where a “sick and twisted” criminal forced the sender to “destroy his wealth” just to get a sadistic thrill. The researchers made it clear that they “sincerely hope” this isn’t the case (4).
A few other ideas involved religious reasons, such as a Christian or Buddhist monk throwing away worldly possessions to pursue sainthood. On the opposite extreme, Galaxy floated the idea that this could be a weird “initiation ritual into a club or cult (4).”
The one reason Galaxy said it was most likely an “agentic/AI mistake.” For example, think of someone “running a big agentic trading or Bitcoin operation” who “recently onboarded a new counterparty.” Perhaps the person controlling the Bitcoin told their AI agent to “send the counterparty 107 BTC,” and the AI misinterpreted this command as sending it to the “Counterparty (Burn Address) (4).
As Gizmodo clarified, “Counterparty” is an old crypto protocol that relied on people burning their Bitcoin in a specific address to create another cryptocurrency called XCP (5).
Although the Counterparty address differs from the one where the 107 BTC ended up, Galaxy’s idea is that the AI agent might have interpreted the request to send to “Counterparty” as a command to burn the BTC.
What do burnt BTC mean for Bitcoin’s supply?
Even though $8 million is a lot of money, it’s not enough to move the needle on Bitcoin’s supply-demand dynamics. After all, 107 Bitcoin is just 0.00051% of Bitcoin’s total supply of 21 million coins.
Any Bitcoin that’s taken out of circulation can be seen as good news in the sense that it makes whatever coins long-term holders have increasingly scarce. And there are a lot more burned Bitcoins. According to the hardware wallet company Ledger, millions of Bitcoins are effectively burnt (6).
That doesn’t mean all of these coins are in burn addresses. Rather, they’re “effectively burnt” since they’re no longer accessible for reasons like forgetting a wallet’s password or poor estate planning.
It’s hard to know exactly how many there are in this bucket, but Ledger’s estimates range from 2.3 million to 4 million. If that’s true, then between 10% to 20% of all Bitcoins are already irretrievable (6).
Even though this lower supply makes each BTC rarer, don’t rush to buy it. Bitcoin’s price depends as much on demand as supply. If nobody’s buying, it won’t matter even if there’s one lonely Bitcoin in circulation.
A shrinking supply is bullish for Bitcoin holders if demand is strong, but be sure to set realistic expectations if you’re serious about investing.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see ourethics and guidelines.
Timechain Index Explorer (1); Blockchain.com (2); Yahoo Finance (3); X (4); Gizmodo (5); Ledger (6)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.