A Bitcoin on-chain indicator is currently forming a pattern that has previously led to selloffs of the cryptocurrency.
Bitcoin’s 100-day SMA supply adjusted downtime has risen rapidly
As noted by an analyst in a CryptoQuant to post, the selloff could potentially be even stronger than what was seen in November 2018. A relevant concept here is that of a “coin day”, which is the amount of 1 BTC accumulated after sitting immobile on-chain for 1 day. Therefore, when a token sits dormant for a certain number of days, it earns days worth of coins for the same amount.
However, when this coin is finally moved, its currency days are naturally reset to zero, and the currency days it had previously accumulated are said to be destroyed. An indicator called “Coin days destroyed” (CDD) measures the total amount of said days of coins that are destroyed through transfers throughout the Bitcoin network.
When the CDD is divided by the total number of coins involved in the transactions, a new metric called “average inactivity” is obtained. This metric is so named because it tells us how inactive the average coin being transferred on-chain is currently (as inactive is nothing more than the number of days the coin is).
When the average latency is high, it means that the coins that are moving at the moment are quite old on average. On the other hand, low values imply that investors are currently transferring coins that they recently acquired.
Now, here’s a chart showing the trend in Bitcoin’s downtime 100-day simple moving average (SMA) over the past several 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 on the chart is actually supply-adjusted slack, which is simply calculated by dividing the original metric by the total amount of Bitcoin supply currently in circulation.
The reason behind this change lies in the fact that the supply of cryptocurrency is not constant, but increases over time. Therefore, 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 slack has been on a steady uptrend from the lows seen after the FTX crash. This means that the old supply has been seeing increased activity recently, which suggests that the long term holders could be putting selling pressure on the market.
The quant notes that a similar trend was also observed in the indicator in August 2018, where the metric started trending upwards from the lows seen earlier that month. Three months after this uptrend began, BTC saw its last leg of the bear market down, during the fall of November 2018.
If this past trend is any good, then Bitcoin could be at risk of another sell-off soon. And since the uptrend in the metric is even more pronounced this time around, a potential drop could also be deeper.
Bitcoin 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
