data shows that the Bitcoin “reserve risk” indicator has fallen sharply recently and is currently reaching historical lows, only seen during the 2015 bear market and the March 2020 COVID crash.
Bitcoin reserve risk suggests strong Bitcoin price action relative to price
According to the latest weekly report from Glass Node, BTC investors have been holding on to their coins despite the crypto’s recent sharp price drops.
Before looking at the role of the Reserve Risk indicator, it is best to understand a few concepts.
A "coin day" is accumulated in the market, with every 1 BTC held constant over the course of a day. The daily sum of such coins across the market can tell us how inactive this market is and the supply of long-term holders has been.
Because of this, coin-day sums can be an effective way to measure Hodler’s belief in the Bitcoin market.
However, there is another way to explain the age of the coin and therefore the LTH conviction; as Glassnode explains:
Stronger hands will resist the temptation to sell, and this collective action increases the "opportunity cost". The Hodlers are actively deciding not to sell every day, which increases the accumulated unspent "opportunity cost" (known as HODL bank).
Another interesting thought is the incentive these long-term home mortgage lenders have to sell immediately. It is measured by the current price of Bitcoin.
Whenever prices rise, Hodler becomes more and more interested in realizing their profits, so the incentive to sell increases.
Now, reserve risk models the ratio between this "incentive to sell" and the cumulative "opportunity cost" of long-term hodlers (as discussed above). Below is a chart of the indicator.
As you can see in the chart above, Bitcoin reserve risk has declined in recent days and is now approaching all-time lows.
This shows that despite the coin’s price collapse in 2022, BTC investors are still holding on to their coins.
The last time such low indicator values were observed was during the bear market in late 2015 and the crash in March 2020.
BTC price
At the time of writing, the price of Bitcoin is floating around $209,000, down 1% over the past week. The coin has lost 27% of its value over the past month.
The chart below shows the trend of crypto values over the past five days.
