Bitcoin: It's the quiet ones you have to watch

09/29/2021 | 12:04pm

As cryptocurrency fans know, Bitcoin's price can quickly move up or down based on the movements of large wallets held by a small community. Some experts estimate that about 1,000 wallets hold more than 40% of the total Bitcoin supply, these are individuals and organizations that were able to invest shortly after the creation of the digital currency. For the record, in the cryptosphere, individuals behind these wallets are nicknamed whales, just like in traditional finance. Beyond the daily trading volume, it is interesting to analyze the movement of those who have been holding Bitcoin for a long time.

Have you heard about "Coin Days Destroyed" (CDD)? Behind this apocalyptic name is relevant data to observe the movements of "smart money", in other words, those who hold their cryptocurrency assets for a long period of time. These portfolios accumulate in down periods and take their profit in bullish euphoria.

From a mathematical point of view, the calculation is simple: a unit of unspent coin earns a daily "coin day". When this coin is spent, the cumulative coin days are then counted in the CDD metric. The total number of coin days destroyed in a specific period is calculated as = the number of coins spent x the length of time those coins have been held. With this calculation, we give more importance to coins that have not been used for a long time. Here's an example:

Wallet 1: 5 BTC dormant for 200 days will have accumulated: 5 BTC x 200d = 1000 coin days Wallet 2: 200 BTC dormant for 5 days will have accumulated: 200 BTC x5d = 1000 coin-days

The "coin-day" weighting is the same, while portfolio 1 will have spent 97.5% less BTC than portfolio 2. This highlights the movements of wallets that hold Bitcoin over long periods of time. I'll let you imagine the weight of whales that hold a lot of BTC, hold it for a long time and then decide to part with it at some point. In this case, , the CDD counter goes crazy. 

90 Coin Days Destroyed / Bitcoin price USD (2009-2021)

Source: Glassnode

With this first chart representing the 90-day moving sum of destroyed coin days, we see clear trends during bullish phases. These "old coins" are destroyed by their holders to make profits. In 2017 the peaks of the CDD-90 were realized a few months before the peak of $19500, followed by a dizzying fall of several months to come close to $3000. If we take a closer look at the behavior of the CDD-90 during the last bullish phase of this year, the pattern is similar:

90 Coin Days Destroyed / Bitcoin USD price (2020-2021)

Source: Glassnode

Looking at this chart, we can see that the CDD-90 peaks occurred a few months before the Bitcoin price peaks. This is proof that smart money has been taking profits throughout the top 1 crypto bull market. This indicator is interesting because it allows us to observe macro trends and the behavior of long-term (often wealthy) holders because it takes into account both the lifetime and the volume of coins spent.

Ultimately, high and sustainable CDD-90 values assess the spending behavior of long-term investors, i.e., these individuals take advantage of market strength and high prices to make a profit. Conversely, low values of this indicator suggest that the "old coins" remain dormant and that conviction to hold the digital asset is high. At the time of writing it would appear that the values are relatively low. On the other hand, as an investor, we must keep in mind the following unavoidable adage: "Past performance is no guide to future performance".

90 Coin Days Destroyed / Bitcoin USD price (2014-2021)

Source: Glassnode

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