What is Coin Days Destroyed (CDD)?
CDD measures of the value of an asset spent and the time that asset stayed dormant. To obtain the CDD for an asset, the value of the asset is multiplied by its dormant days. CDD values can be used as a market indicator to study behavioral changes amongst investors, especially whales that hold enough crypto to influence the market.
Key Takeaways
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Coin Days Destroyed (CDD) looks at the amount of time a crypto asset stayed dormant before they were moved. It is obtained by multiplying the number of days an asset lay dormant with the asset's value upon moving.
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It is a metric used to study the behavior of long-term investors in response to presiding market conditions and also to speculate on future trends.
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A high CDD indicates that assets that have been dormant for a significant amount of time are re-entering the market. A low CDD suggests that the assets making up the trading volume are the usual assets.
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Binary CDD compares obtained after adjusting the CDD to the total supply to the average CDD for that asset as a measure of market strength.
You’ve probably come across tweets like the one below and wonder what their implications are for the market.
💤 💤 💤 💤 A dormant address containing 1,128 #BTC (31,587,849 USD) has just been activated after 10.5 years!https://t.co/W87gdQJ0lo
— Whale Alert (@whale_alert) April 21, 2023
On the surface, an old Bitcoin investor just decided to move his assets. While that’s the case, it has deeper implications. Coin Days Destroyed (CDD) metrics try to examine events like this and suggest what they mean for the market.
The number of days a crypto asset spends unmoved is known as Coin Days. Each day adds to this value. When the asset is finally moved, either sent to an exchange or used in a p2p (peer-to-peer) transaction, the Coin Days is said to be destroyed, that is, it resets to zero.
For instance, if 20 Bitcoins stay in a wallet for two weeks, its Coin Days is 14 days, if this asset is finally moved on the fifteenth day, the Coin Days is reset to zero. CDD takes up this value and uses it in a number of calculations.
Why is CDD important?
The daily transaction volume recorded for a crypto asset is often used as a measure of its financial viability. When this peaks, it is thought that more buyers and sellers are entering the market. But this, in fact, is not always a frank measurement. CDD takes a look at the unspent transaction output (UTXO) for new assets entering the market and examines the value of the transaction and the number of days the asset lay dormant.
These values are used to compute the CDD values, which are regarded as a more reliable representation of the rate at which new sellers or assets enter the market. These metrics are used to back up the daily transaction volume as a more informed measure of market strength, and particularly study the behavior of long-term holders and whales.
How to Calculate CDD
CDD is the product of the value of the asset spent and the number of days that it has spent in dormancy. A closer look at the tweet shared at the beginning of this article shows that the investor has moved about 278 BTC in the captured transaction.
These assets have been dormant for 10.5 years; this is about 3,833 coin days (excluding leap years). On confirming the transaction, the Coin Days for these 278 bitcoins is now reset to zero.
The Coin Days Destroyed is calculated as
CDD = Value sent * Coin Day.
Here,
CDD = 278.89 * 3,833 = 1,068,985.37 ~ 1.07 million CDD.
Now, let’s look at what investors can do with CDD information.
How to Use Coin Days Destroyed as an Indicator
CDD calculations are sensitive to high-value assets on the move and also assets moving after a very long time. Here are some ways to interpret CDD values:
Short-term high CDD: A sudden spike in CDD and an increase in trading volume suggests that long-term investors are selling part or all of their assets to take profits. This is usually accompanied by an increased on-chain activity for that asset.
Sustained high CDD: When the CDD stays high alongside the daily trading volume for even longer, it is regarded as an indicator of increased market strength. This is usually seen in bull markets and also in bearish conditions where long-term investors continue to leave a project due to market conditions or protocol-related issues.
Short-term Low CDD: A low CDD accompanied by an increased or unchanged daily trading volume suggests that investors are holding on to their assets for the time being and the change in trading volume is influenced by the usual liquid assets. On-chain activity for the asset remains low amidst the changing daily volume.
Sustained Low CDD: A low CDD for a long period of time suggests that investors’ belief in the asset is increasing and investors are resolving to hold on to their investments for longer. A sustained low CDD is regarded as a bullish signal and suggests a reversal after a correction, as the speed at which dormant assets enter the market has slowed.
Supply-Adjusted CDD and Binary CDD
While Coin Days Destroyed (CDD) usually looks at the movement of coins in transactions, based on how long they’ve been dormant, supply-adjusted CDD also factors in the impact of the total supply of tokens.
Supply-Adjusted CDD
Supply-adjusted CDD considers the total supply of the asset against the calculated CDD. As crypto-assets continue to exist, more assets are issued either through mining, vesting period unlocks, or staking rewards. As more assets are issued, the CDD continues to rise, and supply-adjusted CDD accounts for the impact of each token in supply on the general CDD. It is obtained by dividing the CDD by the total supply at the time:
Supply-adjusted CDD = Calculated CDD/ Total supply
Binary CDD
Binary CDD compares the value obtained after the CDD has been adjusted with the average CDD and represents them with 1 (one) or 0 (zero). If the supply-adjusted CDD is higher than the average, it is represented as 1, and if it is below the average CDD it is represented as 0.
A sustained binary CDD of 1 suggests a bullish market trend while an alternating binary CDD (simultaneous zeros and ones) suggests a bearish trend.
Final Thoughts
Investor behavior is the crux of speculative trading metrics. For CDD, the reactions of long-term holders are studied in relation to that of short-term holders and the general market strength. Long-term holders are often considered true believers in a cryptocurrency project or just the ‘smart money’, especially when they hold a tangible percentage of the asset’s circulating supply.
The longer an investor holds a good amount of a crypto asset, the more relevant they become in CDD studies. This is reasonable in the sense that the resolution to move their assets after such a long hold is presumed to be influenced by a significant event, some of which are only known to them. Since they are considered smart money, the rest of the investors should stay abreast of their activities.
CDD metrics, when properly calculated, therefore come in handy for routine traders and other long-term holders, as dormant assets entering the market can have larger implications.
It is also recommended that investors augment CDD metrics with other market strength, demand, and supply metrics to develop a more informed trading strategy. Risk management practices are always advised. Also, note that this article is only educational and not financial advice.
Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. Follow the author on Twitter @agboifesinachi
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