Bitcoin In Danger Of Another Selloff, This Metric Suggests


Bitcoin on-chain indicator is currently forming a pattern that previously led to significant sell-offs of the cryptocurrency.

Bitcoin 100-Day SMA Supply Adjusted Dormancy Rapidly Increased

As indicated by an analyst in CryptoQuant after, the sale could be even stronger than that seen in November 2018. The relevant concept here is of a “monetary day”, which is the amount of 1 BTC accumulated after sitting still on the chain for 1 day. Thus, when a token remains inactive for a certain number of days, it earns coin days of the same amount.

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

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

When the average dormancy is high, it means that coins being moved now are quite old on average. On the other hand, low values ​​imply that 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 sleep over the last few years:

Bitcoin Supply Adjusted Dormancy

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 is currently in circulation.

The reason behind this change lies in the fact that the supply of the crypto is not constant, but rather rises over time. So, accounting for this adjustment makes it so that comparisons with previous cycles are easier to make.

As you can see in the chart above, the Bitcoin supply-adjusted dormancy has been on a steady uptrend since the lows observed after the FTX crash. This means that the old stock has been seeing increasing activity recently, suggesting that the long-term holders could be putting 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 upward trend from the lows seen early in that month. Three months after this upward trend began, BTC observed its final leg down from 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 is even sharper this time, a potential plunge could be deeper as well.

BTC price

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

Bitcoin price chart

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

Featured image by Thought Catalog on, charts by,



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