The Value Days Destroyed Multiple compares near-term spending behavior to the yearly average, as a means of detecting overheated and undervalued markets. It's effectiveness is due to the nature of how market tops are formed: via the increasing spending of older coins that eventually overpower demand, ending euphoric bull runs. Conversely, as older coins remain dormant and accumulation begins, this metric will decline and bottom during capitulation events and periods of accumulation.
It is calculated as the ratio of two daily moving-averages (30, 365) of Value Days Destroyed (Coin Days Destroyed * Price), then adjusted for supply inflation to account for changes in spender behavior over time.
Formula: (MA30(CDD * Price) / MA365(CDD * Price)) * (Supply / 21e6)
- Extreme values above 2.9 historically print at or just before cycle peaks, when market activity is at its highest and many coins are changing hands.
- High values above 1.4 denote the market "heating up" with higher spending activity than the yearly average. This often occurs as prices approach previous highs.
- Low values below 0.75 occur in bear markets when accumulation behavior dominates and coins are maturing.
Coined By
References
A New Experiment in Cumulative Destruction, 10-Nov-2021