This Metric Suggests Bitcoin Could Be In Danger Of Another Selloff

Keshav Verma

1 year ago

3 mins read

Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Created by industry experts and meticulously reviewed

The highest standards in reporting and publishing

How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

A Bitcoin on-chain indicator is currently forming a pattern that has previously led to significant selloffs of the cryptocurrency.

Bitcoin 100-Day SMA Supply Adjusted Dormancy Has Rapidly Gone Up

As pointed out by an analyst in a CryptoQuant post, the selloff could potentially be even stronger than the one seen in November 2018. A relevant concept here is of a “coin day,” which is the amount of 1 BTC accumulated after sitting still on the chain for 1 day. Thus, when a token stays dormant for a certain number of days, it gains coin days of the same amount.

However, when this coin is finally moved, its coin days naturally reset back to zero, and the coin days it had previously accumulated are said to be destroyed. An indicator called the “Coin Days Destroyed” (CDD) measures the total amount of such coin days being destroyed through transfers on the entire Bitcoin network.

When the CDD is divided by the total number of coins being involved in transactions, a new metric called the “average dormancy” is obtained. This metric is so named because it tells us how dormant the average coin being transferred on the chain currently is (as dormancy is nothing but the number of coin days).

When the average dormancy is high, it means coins being moved right now are quite aged on average. On the other hand, low values imply investors are currently transferring coins that they only recently acquired.

Now, here is a chart that shows the trend in the 100-day simple moving average (SMA) Bitcoin dormancy over the last few years:

The 100-day SMA value of the metric seems to have been quite high in recent days | Source: CryptoQuant

Note that the version of the metric in the graph is actually the supply-adjusted dormancy, which is simply calculated by dividing the original indicator by the total amount of Bitcoin supply that’s currently in circulation.

The reason behind this change lies in the fact that the supply of the crypto isn’t constant, but rather moving up with time. So, accounting for this adjustment makes it so that comparisons with previous cycles are easier to do.

As you can see in the above chart, the Bitcoin supply-adjusted dormancy has been on a steady uptrend since the lows observed following the FTX crash. This means that the old supply has been observing rising activity recently, suggesting that the long-term holders might be exerting selling pressure on the market.

The quant notes that a similar trend in the indicator was also seen back in August 2018, where the metric started on an uptrend from the lows seen early in that month. Three months after this uptrend started, BTC observed its final leg down of the bear market, during the crash of November 2018.

If this previous trend is anything to go by, then Bitcoin could be at risk for another selloff soon. And since the uptrend in the metric this time around is even sharper, a potential plunge might be deeper as well.

BTC Price

At the time of writing, Bitcoin is trading around $20,900, up 11% in the last week.

Looks like BTC has declined in the last few days | Source: BTCUSD on TradingView

Featured image from Thought Catalog on Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.