Bitcoin on-chain indicators are now forming a pattern that has previously led to significant cryptocurrency selling.
Bitcoin 100 Day Supply SMA Settles Dormancy Has Rapidly Rise
As indicated by the analyst in the CryptoQuant post, the selloff may be stronger than it appeared in November 2018. The relevant concept here is the “coin day”, which is the amount of 1 BTC collected after sitting on the chain for 1 day. Thus, when the token remains inactive for a few days, it earns the same amount of coin days.
However, when this coin is finally moved, the day of the coin naturally resets back to zero, and the day of the coin before it has been collected is said to be destroyed. An indicator called “Coin Days Destroyed” (CDD) measures the total number of days that coins are destroyed through transfers in the entire Bitcoin network.
When the CDD is divided by the total number of coins involved in the transaction, a new metric called “average dormancy” is obtained. This metric is so named because it tells you how dormant the average coin transferred in the current chain is (since dormancy is nothing but the number of days a coin has been in).
When the average dormancy is high, it means that the coins that are being moved now have enough of an average age. On the other hand, low values indicate that investors are now transferring the coins they just bought.
Now, here’s a chart showing the trend in Bitcoin’s 100-day moving average (SMA) dormancy over the past few years:
The 100-day SMA value of the metric seems to have been quite high in recent days | Source: CryptoQuant
Note that the metric version on the chart is actually supply-adjusted dormancy, which is simply calculated by dividing the original indicator by the total amount of Bitcoin supply currently in circulation.
The reason for this change lies in the fact that the supply of crypto is not constant, but is increasing over time. So, accounting for this adjustment makes comparisons with previous cycles easier to make.
As you can see in the chart above, Bitcoin supply-adjusted dormancy has been in a steady upward trend since the decline observed after the FTX crash. This means that old supplies have seen a surge in activity recently, suggesting that long-term holders may be under some selling pressure in the market.
The number noted that the same trend in the indicator was also seen in August 2018, where the metric began to rise from the level seen at the beginning of the month. Three months after this uptrend began, BTC saw the last leg down from the bear market, during the November 2018 crash.
If these previous trends are anything to go by, then Bitcoin could be at risk for another selloff soon. And since the upward trend in the metric this time is even sharper, the potential plunge could be even deeper.
BTC price
At the time of writing, Bitcoin is trading around $20,900, up 11% over the past week.
Looks like BTC has declined in the last few days | Source: BTCUSD on TradingView
Featured images from Thought Catalog on Unsplash.com, charts from TradingView.com, CryptoQuant.com