Despite bitcoin’s meteoric rise of over 550% this year, on-chain analysis paints a picture of it still being early in the game. Why? Three words: Coin Days Destroyed (CDD).
Nowhere Near The Top This Year
By assessing CDD, we can visualize the confidence among long-term bitcoin holders relative to the current price of bitcoin.
To understand how CDD works, let’s start with coin days.
What Is A Coin Day?
Coin days are the number of days since a bitcoin was moved over from one wallet to another. The logic behind them is to assign a higher value to an idle coin. Why? Because long-term bitcoin holders have greater knowledge of market cycle volatility and thus are more adept at identifying the best times to buy or sell.
So when long-term holders sell their bitcoin, the Coin Days Destroyed will surge higher. When strong hands hold, CDD trends lower which suggests their confidence in a new bull market.
What Are Coin Days Destroyed?
Coin Days Destroyed is a term for when bitcoin that’s been sitting in a wallet—accruing coin days—is all of a sudden sold, causing those coin days to be “destroyed.” Importantly, bitcoin is not actually destroyed. CDD is simply terminology that calculates the time erased.
Here’s an example: Imagine an investor purchases 1 bitcoin and holds it in their wallet for 90 days, then sees a big increase in the price and decides to sell. He would have “destroyed” 90 bitcoin days.
When investors are accumulating (and few old coins are spent), Coin Days Destroyed will trend downwards. During late-stage bull markets, old coins often are increasingly spent and will lead to a spike in Coin Days Destroyed.
The beauty of this formula: It weighs less on the activity of short-term traders. Since these traders don’t hold bitcoin for long, their impact on Coin Days Destroyed will be minimal as compared to the activities of long-term traders.
However, when long-term holders are starting to sell their bitcoin, it’s worth paying attention to.