What Is Coin Days Destroyed (CDD) & How to Calculate It

There are many concepts, metrics, and techniques that help savvy cryptocurrency investors navigate this unpredictable space. While a lot of individuals quickly grasp the basics, such as what blockchain is and how wallets are being used, more complex terminology can remain foreign for a long time. One such concept is Coin Days Destroyed (CDD).

This potent metric can give crypto analysts valuable insights into theassets of whale investors, the movement of digital currencies across the landscape, and the overall market dynamics. But what exactly does Coin Days Destroyed mean, and how is it determined?

In this article, we’ll break down the core ideas behind CDD. We’ll explain the exact formula to help you calculate it yourself and teach you why that’s important in the first place. Let’s get started!

What Is Coin Days Destroyed (CDD)?

Coin Days Destroyed is a metric that describes how long a certain number of cryptocurrency coins or tokens remained dormant before their transaction. CDD is exclusive to the crypto market, where investors are known for holding their digital assets for months or even years before trading or selling them.

The “coin days” part of the metric refers to the number of days an investor has kept their funds intact. Each day their crypto remains in their wallet, coin days increase by one. Once holders move their assets for whatever reason, those coin days get “destroyed.”

On the surface, CDD offers just another way to leverage blockchain’s transparency to measure market activity and crypto transfers. The purpose of this metric is to provide valuable information that goes beyond tracking the average everyday transactions of hundreds of thousands of crypto traders.

Instead, the goal of Coin Days Destroyed is to shed light on noteworthy movements in significant holdings. The cryptocurrency market is still relatively young and small compared to traditional markets, some of which have existed for centuries. As a result, sizable transactions can have big impacts on the space as a whole.

Finally, CDD is not to be confused with the exchange volume metrics. While they have similar roots, volume metrics paint a more short-term picture, while Coin Days Destroyed can be strong indicators of long-term movements and global market sentiment.

The Importance of CDD

The importance of CDD lies in its ability to predict potential market trends and movements. Sudden spikes in CDD mean that long-term investors are finally using their assets. That can have multiple implications for the overall ecosystem, especially in combination with other factors, such as bull run or bear run indicators.

For instance, if the blockchain explorer shows activity in a dormant wallet of a whale investor, that can be an indicator of a potential market trend shift. Another consequence could be the distribution of wealth among smaller investors, as whales sell off a portion of their holdings.

Another importance of CDD, especially compared to regular volume indicators, is their capacity to filter the noise. Regular trading volume indicators that you can find on exchanges and charting platforms feature short-term, low-value transactions that don’t give much valuable information about the market’s future.

On the other hand, Coin Days Destroyed filters out smaller, less significant transactions to highlight bigger movements that are likely to have more impact on the cryptosphere. A retail investor can use this metric to detect potential market manipulation, escape pump-and-dump schemes, predict monumental market shifts, and more.

How Is Coin Days Destroyed Calculated?

Coin Days Destroyed is calculated by multiplying the number of coins transferred from a wallet by the number of days they have been dormant (coin days). Here’s what the math formula looks like:

To put the formula into action and give you a real-life illustration, let’s say a crypto whale decided to transfer 100 Bitcoins after keeping them in their wallet for 10 years. Excluding leap years for simplification, 10 years amount to 3650 days. Using the formula shown above, we get the following calculation:

In short, transferring 100 BTC after 10 years results in ~36.5 thousand Coin Days Destroyed.

It’s important to note that a new CDD is calculated for each transaction. Furthermore, the metric measures activity and not monetary value. Moving 100 BTC and 100 ETH after the same amount of time results in the same CDD, even though the value of BTC is much higher than ETH.

How to Use Coin Days Destroyed Indicator

There are several ways to use the Coin Days Destroyed indicator to predict market sentiment and future price movement. Here are the four key scenarios to look out for:

1. Short-term high CDD means there’s been a sudden spike in CDD after a long period of dormancy, followed by another period of inactivity. As a retail investor, you should be on the lookout for potential sell-offs by whale holders. That could result in a considerable market correction. Essentially, long-term investors are probably looking to take profits or are insecure about the asset and want to exit.
2. Sustained high CDD can often be encountered during strong bull markets when holders are realizing profits on coins that they hold for long periods. On the other hand, it can also signal a fundamental shift in the market and a potential for an upcoming bear run. The holders might be trying to sell at the peak of the current run before the price drops significantly.
3. Short-term low CDD refers to a minimal movement of dormant coins. If there are no significant changes in daily trading volume for the cryptocurrency, the market is likely in a consolidation period. Investors can expect a bit of stability and no sudden price movements. If you’re looking to accumulate, this could be a good time to do so.
4. Sustained low CDD is one of the strongest indicators of investors’ confidence in the asset. If the coins haven’t been moved for a long period of time, it implies that the holders see vast potential for their steady growth in the future. As a result, sustained low CDD is often seen as a bullish signal. Bitcoin Days Destroyed is one of the best indicators in these circumstances since it’s the first and biggest cryptocurrency by far.

Supply-Adjusted Coin Days Destroyed

Supply-adjusted Coin Days Destroyed (SACDD) adds the total supply of the asset into the CDD calculation. By including this additional factor, SACDD offers an enhanced and more balanced view of the current state of the market.

Different cryptocurrencies feature different circulating and total supplies. Moreover, as time passes, many networks see more coins introduced into circulation through mining, staking, token unlocks, etc. As the number of coins or tokens changes, a Supply-Adjusted Coin Days Destroyed metric is necessary to account for these adjustments.

Here’s what the formula looks like:

As you can see, SACDD is calculated by dividing CDD by the cryptocurrency’s total circulating supply. This step is important as it normalizes the metric. By considering the current token supply, one can make more accurate comparisons over time.

For instance, the Ethereum total circulating supply grew from ~75 million at the start of 2016 to ~120 million at the beginning of 2023. You can clearly see how measuring the Supply-Adjusted CDD is essential when it comes to the overall impact it can have on the market. Simply put, it takes more coins to have as big of an influence in 2023 than it would’ve back in 2016.

Binary Coin Days Destroyed

Binary Coin Days Destroyed (BCDD) is determined by comparing the current Supply-Adjusted Coin Days Destroyed to the average CDD. As its name suggests, Binary CDD features only two values—one and zero.

If the Supply-Adjusted CDD is higher than the chosen average, the Binary CDD returns the value of 1. Conversely, its value is 0 if the SACDD is lower than the average.

Taking all this into account, BCDD is a categorization metric created to give a quick but comprehensive glance at the market as a whole. It can be a strong signal of market sentiment and the prevailing trends.

Here are the most common ways of interpreting the insight given by the Binary Coin Days Destroyed metric:

• Prolonged periods where BCDD equals 1 mean the market is experiencing a bullish run. This is especially true if it’s followed by considerable on-chain activity and trading volume.
• Choppy seasons, where BCDD constantly switches between 1 and 0 to create a bar-code-style coin days destroyed chart, indicating a bearish run.

Crypto enthusiasts can choose the average period they want to consider. The default moving average takes the coin’s entire history into account, while shorter periods of 7 or 30 days can be used for more precise current observations.

Key Takeaways

As we can see, Coin Days Destroyed is simple to calculate, and anyone can do it with the information that is readily available on blockchain explorers. Yet even though it’s a simple metric, it offers valuable intelligence that should be further examined with other market indicators.

Savvy investors have CDD as one of the many tools under their belts. It helps them stay on top of the trends while trying to predict future movements. CDD derivatives, such as Supply-Adjusted CDD and Binary CDD, further expand on its use cases.

Ultimately, the beauty of CDD lies in its clarity and focus. It’s a must-have signal, especially for long-term investors!