In a data-ridden marketplace like the crypto market, knowing what Bitcoin Days Destroyed is crucial to having a consistent investment strategy.
Like any financial market, the cryptocurrency market is full of metrics that allow us to understand what situation it is in. Thus, from the volume of transactions per day, to price variations and the ranking of the main exchanges, all this data allows us to plan an investment strategy. However, one of the most important metrics in the crypto world is very little known, that's why today I tell you what Bitcoin Days Destroyed is and what is its importance.
The crypto world is full of facts and figures. So many that sometimes it is difficult to locate the information we need at any given time, to know how to act within the market. Or even worse, we find data that we are not very sure what they are for. This being the case, on many occasions, of Bitcoin Days Destroyed (BDD).
And is that, Bitcoin Days Destroyed is a measure to visualize the volume of transactions in the crypto market. Measuring it through the multiplication of the number of Bitcoins traded in any operation, by the number of days that have passed since the last time those same BTC were moved.
In other words, suppose we buy 100 Bitcoins on Monday and by Friday we sell them. Five days have passed, which will be multiplied by 100 Bitcoins to give a total of 500 BTC. Now, if the person who bought the cryptocurrencies from us resells them on Sunday, two days will have passed, so the value of BDD will be 200 BTC.
What is this for?
Now, if the concept of Bitcoin Destroyed Days is not difficult to understand, it remains to be clarified what its usefulness is in practical terms. Well, at the end of the day, it is not at all obvious what we can do knowing what is the multiplication between the number of Bitcoins traded, and the number of days since their last operation.
In this regard, CoinDesk Senior Analyst Galen Moore commented on the importance of BDD on the CoinDesk Crypto Podcast Network podcast. Explaining that it would be a metric of the behavior of investors in the long term:
BDD is a metric that reflects the collective action of long-term holders (…) What is the psychology of a long-term holder? It can be viewed collectively (through BDD) in a way that I don't think is possible in other asset categories.
Therefore, thanks to the use of Bitcoin Days Destroyed, any user or investor in the crypto world can observe the trends of the large holders of Bitcoin.
So, when this metric starts to increase, we know that holders are trading with their cryptocurrencies. While if it decreases, we understand that there is a trend towards saving, rather than trading. All of which allows us to be more effective in planning our investment strategy.
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