A Bitcoin-on-chain indicator is currently forming a pattern that has previously led to significant sell-offs in the cryptocurrency.
Bitcoin 100-Day SMA Stock Adjusted Rest Is Rising Rapidly
As noted by an analyst in a CryptoQuant after, the selloff could potentially be even stronger than the one in November 2018. A relevant concept here is a “coin day”, the amount of 1 BTC accumulated after sitting still on the chain for 1 day. So when a token remains dormant for a certain number of days, it gains coin days of the same number.
However, when this coin is eventually moved, the coin days are of course reset to zero and the coin days it had previously collected are said to be destroyed. An indicator called the “Mint days destroyed(CDD) measures the total number of such coin days destroyed by transfers across the entire Bitcoin network.
When the CDD is divided by the total number of coins involved in transactions, a new metric called the “average dormancy” is obtained. This metric is so called because it tells us how dormant the average coin currently being transferred on the chain is (since rest is nothing but the number of coin days).
When the average dormancy is high, it means that coins that are moving now are, on average, quite old. On the other hand, low values imply that investors are currently transferring coins they have only recently acquired.
Now, here is a chart showing the trend in the 100-day simple moving average (SMA) Bitcoin rest period 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 version of the metric in the chart is actually the supply-adjusted rest period, which is simply calculated by dividing the original indicator by the total amount of Bitcoin supply currently in circulation.
The reason behind this change lies in the fact that the supply of the cryptocurrency is not constant, but increases over time. Taking this adjustment into account makes comparisons with previous cycles easier to make.
As you can see in the chart above, Bitcoin’s supply-adjusted rest period has been on a steady upward trend since the lows seen after the FTX crash. This means that the old supply has been seeing rising activity lately, suggesting that the long-term holders exert selling pressure on the market.
The Quant notes that a similar trend in the indicator was also seen in August 2018, when the metric began an upward trend from the lows seen at the beginning of that month. Three months after this uptrend began, BTC saw its last leg of the bear market, during the crash of November 2018.
If this past trend is anything to go by, Bitcoin could be at risk of another sell-off soon. And since the uptrend in the stat is even sharper this time around, a potential plunge could also be 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 image from Thought Catalog at Unsplash.com, charts from TradingView.com, CryptoQuant.com