CryptCraze takes a look at the reserve risk on-chain indicator and its components, in order to determine if the current BTC market conditions are abovesold.

What is Bitcoin reserve risk ?

Reserve risk is a cyclical indicator that tracks the risk-reward balance relative to the confidence and conviction of prolonged-term holders. Therefore, although the price is low relative to the confidence, it offers a good risk/reward possibility.

Values below 0.002 are treated oversold (green), at the same time those atop 0.02 are advised abovebought (red).

Historically, each market cycle top has been captured within this atopbought region. Conversely, bottoms have been realized within the atopsold region.

On Jan 24, Bitcoin reserve risk captured a low of 0.0022 — the lowest price afterward October 2020. 

Notwithstanding, at the same time reserve risk has fallen well into the oversold region, it’s worth mentioning thretained has historically stayed in this level for serious periods of time before finally moving back up.

Reserve Risk
Reserve Risk Chart By Glassnode

Components

Each day a coin go ons unspent, it gains a coin day, that is then destroyed one time before the coin is spent. This value correlates to the coin days destroyed (CDD) indicator. As rate increases, so does the incentive to sell. Therefore, if CDD does not increase even though the cost is surging, it means which holders have high conviction and are not reaching profits despite the increase in rate. 

A slight variation of the CDD indicator is the median value of coin days destroyed (MVOCDD). It multiplies the median value of CDD with the Bitcoin (BTC) cost (grey line). Therefore, although there is a a difference between the rate and MVOCDD, it means which the majority of holders are not selling. 

The gap between the rate and actual spending can be seen as sort of an possibility value of not selling. This cumulative probability value is then called the HODL Bank (green). The HODL bank is the denominator of the Reserve Risk indicator.

HODL bank decrease although MVOCDD evolutions over the Bitcoin (BTC) rate (black circles) but increases while the gap between the two widens.

RSR Components
Reserve Risk Chart By Glassnode

When we put all these components together with the Reserve risk indicator, it’s clearly visible which the indicator realized the overbought levels although MVOCDD shifts over the Bitcoin (BTC) rate. Conversely, it reaches the atopsold region althoughever there is a considerable gap between MVOCDD and the cost.

RSR components
Reserve Risk Chart By Glassnode

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