Bitcoin On-Chain Analysis: Dormancy Flow sends buy signal for fifth time in history

CoinCu will cover Bitcoin (BTC) on-chain metrics related to longevity, specifically dormancy and entity-adjusted dormancy flow.

What is rest

Quiet is the average number of days destroyed per traded coin on any given day. It is calculated using the following formula: Rest = Coin Days Destroyed (CDD)/Coins Transactiond.

A high value means old coins are moving, while a low value means new coins are moving.

Since the start of the March 2020 rally, dormancy has had two significant peaks (black circles) on January 7 and July 31, 2021. On Monday it hit a high for the year at 57.2.

Dormancy reached its first level before Bitcoin price hit an all-time high in April, suggesting old holders are taking profits after a significant bull run.

The second will be reached when BTC price recovers after a sharp drop. At the time, this was taken as a sign of weakness as old holders looked to sell on the initial rally.

The rest period has since declined and currently stands at 8.53. This is a relatively low value, which is why most new coins are traded. It was last seen from May to November 2020 before dramatically rising to the current all-time high.

The source: glass node

Entity sanitized quiescent flow

A very interesting observation comes from Entity-Adjusted Dormancy Flow. This indicator is Ratio between current market cap and annual rest value in USD and can be used to determine lows and highs at the BTC price.

Historically, BTC has often bottomed when the indicator hits levels between 150,000 – 250,000. Before January 12, they performed only four times (black circles). All confirm a bottom for BTC.

• November 2011: 180,000 yen
• January 2015: 209,000 VND
• December 2018: VND193,000
• March 2020: 245,922

On January 12, the indicator reached 243,879 (red circle). If history rhymes, it would mark a bottom for BTC. It is also consistent with other longevity indicators.

The source: glass node

Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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