A Bitcoin on-chain indicator is currently forming a pattern that has previously led to significant sell-offs for cryptocurrencies.
Selling waves for cryptocurrencies could be strong
As one analyst in a CryptoQuant post pointed out, the sell-off could potentially be stronger than seen in November 2018. The relevant concept here is the ‘money day’, which is the amount of 1 BTC accumulated after being stationary on the chain for 1 day. Thus, when a token is dormant for a certain number of days, it earns the same amount of money days.
However, when this coin is finally moved, the coin days are naturally reset and the coin days that it previously accumulated are said to be destroyed. An indicator called “Coin Days Destroyed” (CDD) measures the total amount of such cryptocurrency days destroyed through transfers across the entire Bitcoin network.
When CDD is divided by the total number of cryptocurrencies involved in transactions, a new metric called “average dormancy” is obtained. This metric is so named because it tells us how dormant the average cryptocurrency currently transferred on the chain is.
Bitcoin trend over the last few years
Now, here is a chart showing the trend in the 100-day simple moving average (SMA) Bitcoin lethargy over the past few years:
Note that the version of the metric on the chart is actually supply-adjusted dormancy, which is calculated by dividing the original indicator by the total supply of Bitcoin currently in circulation. The reason behind this change is that the supply of crypto is not fixed but instead increases over time. Therefore, taking this correction into account makes it easier to make comparisons with previous cycles.
As you can see in the previous chart, Bitcoin supply-adjusted lethargy has been in a steady uptrend since the lows observed after the FTX crash. This means that the legacy supply has been seeing increased activity lately, suggesting that long-term holders may put selling pressure in the market.
Quant notes that a similar trend was seen in the indicator in August 2018, and the metric started an uptrend from the lows seen earlier that month. Three months after this uptrend began, BTC saw the last leg of a bear market during the crash in November 2018.
If this previous trend is anything to go by, Bitcoin may soon be at risk of another sell-off. And as the bullish trend in the metric is even sharper this time, a potential drop could be even deeper. cryptocoin.com As we mentioned, Bitcoin is trading around $22,631 with an increase of 8% in the last 24 hours.
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