Bitcoin binary CDD approaches breakout which historically initiates Bull rally
On-chain data shows that Bitcoin binary CDD is currently approaching a breakout that has marked the start of bull rallies in the past.
Bitcoin Binary CDD has been on the rise lately
As pointed out by an analyst in a CryptoQuant post, the binary CDD is currently within the “accumulation zone.” To understand what the “binary CDD” indicator does, the concept of “coin days” must be looked at first.
A coin day is an amount that 1 BTC accumulates after being dormant for 1 day on the blockchain. This means that, for example, if a stack of 3 coins sits idle for 3 days, it will have collected 9 coin days in total.
Now, when the coins that have accumulated a certain number of coin days are finally moved across wallets, the coin days counter is naturally reset back to zero, and those coin days that they previously accumulated are said to be “broken.”
“Coin Days Destroyed” (CDD) is a metric that keeps track of such coin days being reset across the entire BTC network. When this indicator has an elevated value, it means that a large number of dormant coins are possibly moving on the network right now.
A cohort called the long-term hold (LTH) group holds onto their coins for long periods of time (thus accumulating a large number of coin days), so when CDD is high, it means these investors are on the move.
As mentioned before, the relevant version of CDD here is the binary CDD, which is a calculation that basically tells us whether the current value of CDD is higher than the average or not.
Here is a chart showing the trend of this 182-day moving average (MA) of this Bitcoin indicator over the past few years:
Looks like the 182-day MA value of the metric has seen some slight rise in recent days | Source: CryptoQuant
As you can see in the graph above, the quant has highlighted the trend that the 182-day MA Bitcoin binary CDD followed just before two previous rallies. It appears that both before the rally in April 2019 and the bull run in the first half, the metric broke out of the “accumulation zone”.
This zone, which occurs below a value of 0.3, is named so because values of this type suggest that the LTHs are not showing much selling/moving activity right now and thus accumulating the cryptocurrency.
This type of trend is often seen during bearish trends, as the chart shows. However, in bull runs, the metric approaches a value of 1, which means that these LTHs start to sell more aggressively.
Interestingly, while this pattern formed in the aforementioned rallies, the second wave of the 2021 bull run did not see any significant breakouts in the indicator.
Recently, the metric has seen some increase again and is approaching the 0.30 line after being in the accumulation zone for 529 days. From the chart it is visible that previous attempts during this bear market ended in a rejection of the calculation.
However, if the breakout is successful this time, this Bitcoin rally could get a big boost, if the previous instances of this trend are anything to go by.
BTC price
At the time of writing, Bitcoin is trading around $26,900, up 36% in the past week.
BTC seems to have shot up in the last couple of days | Source: BTCUSD on TradingView
Featured image from Traxer on Unsplash.com, Charts from TradingView.com, CryptoQuant.com
