The Daily Dive #149 - On-Chain Cycle Indicators

MVRV, 90-Day CDD And Reserve Risk

In today’s Daily Dive, we will cover some of the key on-chain cycle indicators and what they tell us about where we are at in the market. All of the indicators today leverage a percentile analysis, looking at current values over historical percentiles, to show when indicators suggest when the market is bottomed, topped, neutral or in between. 

Across the approximately 20 on-chain cycle indicators we track, on-chain shows a neutral to bullish market setup. Yet, we know that on-chain, macro and derivatives all play a role in bitcoin’s growth trajectory, especially with high bitcoin risk-on equities correlations right now. 

The Market Value To Realized Value Ratio (MVRV) is a metric we cover extensively as it incorporates the current state of price relative to bitcoin’s on-chain cost basis or “fair value.” The MVRV Z-Score incorporates the standard deviation of market cap to produce a more quality signal.

At the previous 2021 bitcoin highs, we didn’t see the cycle blow-off tops play out like previous cycles. But with less upside, also likely brings less extended downside. Currently, bitcoin’s MVRV Z-Score points to a neutral market state after the price has rallied from the $30,000 range multiple times. Another move down to an “over-cooled” dark green state, where the value is below its 15th percentile, looks unlikely barring a black swan sell-off type event. 

A cumulative view of 90-Day Coin Days Destroyed (CDD) is another key indicator that helps show the activity of long-term holders. Although we saw a rise in coin days destroyed during the May 2021 top, we didn’t see much spending activity at all during the November 2021 top. The last few months have seen little movement in older coins moving, suggesting that most “smart money” holders are sitting tight right now.

The indicator currently shows a period of accumulation to heavy accumulation over the last few months with 90-Day CDD below its 25th percentile. 

Reserve Risk, covered extensively in The Daily Dive #094: Reserve Risk Overview, is a more complex on-chain indicator that aims to quantify the risk/reward allocation to bitcoin based on the conviction of long-term holders. The metric is calculated as price over an estimate of long-term holder conviction. For more on that calculation, check out the overview listed above. 

Currently, Reserve Risk is accelerating post a bottom when bitcoin price fell to approximately $35,000. There’s been very few “max opportunity” signals for Reserve Risk across bitcoin’s history. With Reserve Risk now in its “opportunity” zone, we expect less of a downside move after a more modest, neutral top in 2021. 

Reserve Risk is low when HODLer conviction is high and price is low. This is yet another metric to point to strong long-term holder conviction in the market right now.