Definition. The Adjusted Reserve Risk is a variant proposed by original metric author Hans Hague, seeking to correct for the observed drift in Reserve Risk over time. Reserve Risk is a cyclical indicator that tracks the risk-reward balance relative to the confidence and conviction of long-term holders, modelling the ratio between the current price (incentive to sell) and the conviction of long-term investors (opportunity cost of not selling).

Technical. The adjusted variant normalizes Reserve Risk by its own long-term trend:

• Adjusted Reserve Risk = Reserve Risk / sma(Reserve Risk, 300) (orange)
• Reference levels: Elevated Risk above 2.0 (red), Reduced Risk below 0.5 (green), and the All-time-Average of the adjusted series (blue)

Interpretation. The general principles that underpin Reserve Risk are as follows:

• Every coin that is not spent accumulates coin-days which quantify how long it has been dormant. This is a good tool for measuring the conviction of strong hand HODLers.

• As price increases, the incentive to sell and realise these profits also increases. As a result, we typically see HODLers spending their coins as bull markets progress.

• Stronger hands will resist the temptation to sell and this collective action builds up an 'opportunity cost'. Every day HODLers actively decide NOT to sell increases the cumulative unspent 'opportunity cost' (called the HODL bank).

• Reserve Risk takes the ratio between the current price (incentive to sell) and this cumulative 'opportunity cost' (HODL bank), comparing the incentive to sell to the strength of HODLers who have resisted the temptation.

Because the raw indicator has drifted structurally lower across cycles, dividing by the 300-day moving average re-centers it: readings above 2.0 have historically aligned with high-risk, late-bull conditions, while readings below 0.5 have marked periods where the risk-reward balance favoured accumulation, on a basis that is comparable across cycles.

Notes. Coined by Hans Hague; see Introducing Binary Adjusted BDD, VOCD and Reserve Risk: An Exploration of Bitcoin Days Destroyed (30-May-2019). Built from the native Reserve Risk metric. The underlying construction is broken out in Reserve Risk Components.