The time is up again to find efficient frontiers for our crypto portfolios. We continue a series of publications dedicated to Bitcoin price forecasts. Our first publication entailed a very popular stock-to-flow model, then we followed with various machine learning methods. This time around we are moving forward to another popular tool, the “Coin Days Destroyed” (CDD) indicator.

This indicator is similar to the Open Interest (OI) indicator widely used in classic markets. Open interest is the total number of futures contracts held by market participants at the end of the trading day. It is used as an indicator to determine market sentiment and the strength behind price trends. OI shows the number of contracts that are currently open on a particular stock. It shows the amount of liquidity to be able to get in and out of the trade. As the price of the underlying security is increasing, high open interest indicates that money is entering the market, new long positions are being taken, and the market is decidedly bullish.

The metric takes all of the individually reckoned total coins that moved in a given day and multiplied it by the number of days in a period when those coins remained dormant. In aggregate, this number gives us coin days destroyed for a given day. Not quite the OI technically, but certainly close ideologically.

In other words, Coin Days evaluates the number of coins that are being unspent, thereby laying the foundation to estimate long-term-holder(LTH) position. When that coin is spent, the coin is considered “destroyed” (let’s not confuse it with “burned”!), and becomes another entry data in Coin Days Destroyed metric. Other amounts of coins follow linearly from this relation. For example, 0.5 BTC would have only half a coin day in the same period (one day). CDD is the sum of products of spent transaction output alive days and its value.

The coin days metric is helpful for getting an estimate of the long-term holders present in the market. So the CDD indicator can tell us about how many of these long-term holders are selling right now.

A sharp increase in CDD’s value could suggest that a lot of long-term holders tend to sell off their coins (for whatever reason) as these investors have many coin days piled up so their destruction would show up as an equally bigger increase in the metric’s value. And vice versa.

Now, here is how the history of the indicator has looked like for Bitcoin:

Source: CryptoQuant

The trend makes sense as a lot of long-term holders dumping their coins would naturally lead to a dip in the Bitcoin price. However, the metric hasn’t always been perfect. As the latest bull run in early 2021 shows, CDD peaked earlier than the actual top and its value was much lower when the real top was made. And in 2017, the indicator made a false peak before reaching the real high.

Looking at coin days destroyed alone is not particularly useful as the day-to-day data may vary by large outliers, but for the sake of context, below is the daily chart of coin days destroyed throughout the recent history of Bitcoin:

Source: Glassnode

Historical data of the Coin Days Destroyed indicator versus the Bitcoin price may suggest the metric can help predict tops better than bottoms. Therefore, once again, only by applying various popular price forecast models in combination would allow us to plot realistic price predictors helping make smarter and more reliable decisions for top-bottom approach.