The Adjusted Reserve Risk is a new variant proposed by original metric author Hans Hague, seeking to correct for the observed drift over time. Adjusted Reserve Risk is calculated by taking the ratio between the metric, and its 300-day moving average.
Reserve Risk / SMA(Reserve Risk, 300)
Reserve Risk is a cyclical indicator that tracks the risk-reward balance relative to the confidence and conviction of long-term holders. It provides a long-term cyclical oscillator that models the ratio between the current price (incentive to sell) and the conviction of long term investors (opportunity cost of not selling).
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 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.
Coined By
References
Introducing Binary Adjusted BDD, VOCD and Reserve Risk: An Exploration of Bitcoin Days Destroyed, 30-May-2019