Definition. This chart breaks the Reserve Risk indicator into its constituent components. Reserve Risk is a cyclical indicator that tracks the risk-reward balance relative to the confidence and conviction of long-term holders: a long-term oscillator modelling the ratio between the current price (the incentive to sell) and the conviction of long-term investors (the opportunity cost of not selling). Shown are VOCDD (orange), its moving median MVOCDD (red), the cumulative HODL Bank (olive), and the resulting Reserve Risk oscillator (black) with its upper and lower bounds, alongside price (grey).

Technical. The components build on each other as follows:

• VOCDD = Price x Supply-Adjusted CDD — the USD value of coin-days destroyed each day (orange)
• MVOCDD = median(VOCDD, 30) — the 30-day moving median (red)
• HODL Bank = cumsum(Price - MVOCDD) — accumulated since 2010-08-20 (olive)
• Reserve Risk = Price / HODL Bank (black), framed by an Upper Bound at 0.020 (red) and a Lower Bound at 0.0025 (green)

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). In other words, Reserve Risk compares the incentive to sell to the strength of HODLers who have resisted the temptation.

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 Supply-Adjusted CDD. The drift-corrected variant is charted in Reserve Risk Adjusted, and the native metric is available as Reserve Risk.