Reserve Risk Indicators integrate key metrics like VOCD, MVOCD, and Signal. This composite chart visualizes the confidence among long-term Bitcoin holders relative to its current price, guiding investment decisions.
Calculating Reserve Risk involves steps such as Bitcoin Days Destroyed (BDD) and Adjusted Bitcoin Days Destroyed (ABDD), which normalize for Bitcoin's circulating supply. Other metrics included in the chart are Value of Coin (Days) Destroyed (VOCD), calculated as VOCD = ∑ (Daily Bitcoin price * Adjusted BDD), and MVOCD, which is a median of VOCD to smooth the data. These metrics reflect accumulated confidence among holders over time, aiding in identifying attractive risk/reward opportunities.
Historical analysis shows that low Reserve Risk periods have historically yielded outsized returns, underscoring its relevance in assessing market sentiment and investor behavior.
Historically, when MVOCD exceeds Bitcoin's price, it signals resistance and the formation of local tops. The most recent bearish signal occurred from late March to early April 2024, and since then, Bitcoin has not reached new highs.
An interesting fact to note is that from 2017 to early 2018, there were two bearish signals, and in 2021, the bearish signal appeared before the historical peak. Thus, while this combination of metrics is effective, it is still possible to see new all-time highs, depending on how blockchain data adjusts according to long-term investors' behavior. For now, the current peak at $73,800 is defined as the historical maximum for 2024.
Written by joaowedson