The data shows that Bitcoin’s “reserve risk” indicator has recently dipped and is now at historic lows only seen in 2015 and the March 2020 COVID crash.
Bitcoin Reserve Risk Suggests HODLing Against Price Is Strong
According to the latest weekly report from glass knotBTC investors have held on to their coins despite the recent sharp decline in the crypto price.
Before looking at what the “reserve risk” indicator does, it is best to understand a few concepts first.
A “coin day” is accumulated in the market for every 1 BTC that remains immobile for a day. The sum of these days of coins across the entire market can tell us how inactive the supply of long-term holders has been.
For this reason, the sum of coin days can be an effective way to measure the conviction of hodlers in the Bitcoin market.
However, there is another way to interpret parts days and therefore LTH condemnation; as Glassnode explains:
Stronger hands will resist the temptation to sell and this collective action generates an “opportunity cost”. Every day, HODLers actively decide NOT to sell, increasing the cumulative unspent “opportunity cost” (called the HODL bank).
The other interesting idea here is the incentive these LTHs have to sell right now. It is measured by the current Bitcoin price.
Each time the price increases, the hodlers are more and more tempted to make their profits, and therefore the incentive to sell increases.
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Reserve risk models the relationship between this “incentive to sell” and the cumulative “opportunity cost” (explained above) of long-term hodlers. Below is the chart of the indicator.
The value of the indicator seems to have sharply declined recently | Source: Glassnde's The Week Onchain - Week 26, 2022
As you can see in the chart above, Bitcoin reserve risk has been declining for the past few days and is now approaching all-time lows.
This suggests that despite the coin’s price crashing in 2022, BTC investors have still held on to their coins.
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The last time such low values of the metric were seen was during the late 2015 bear market and March 2020 crash.
At the time of writing, the price of Bitcoin is hovering around $20,900, down 1% in the past week. Over the past month, the coin has lost 27% in value.
The chart below shows the trend of the crypto’s value over the past five days.
Looks like the price of BTC has been consolidating sideways recently | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com