BTC’s reserve risk indicator builds confidence among long-term investors and offers an attractive risk-reward ratio to existing or potential investors.
Other indicators based on supply inactivity also point to strong holding sentiment.
Even though Bitcoin’s {{BTC}} price has more than doubled in the past year, the largest cryptocurrency continues to offer an attractive risk-reward ratio for those considering the investment, according to an on-chain indicator that successfully predicted a bull run in early 2023.
Bitcoin’s “reserve risk,” an indicator that measures the confidence of long-term holders relative to their willingness to postpone spending, remains stable in the so-called green zone below 0.002, according to data tracked by CryptoQuant. The metric can range between 0 and 1.
The low reading is a sign that long-term holders are motivated to hold Bitcoin at market price rather than sell, suggesting favorable demand-supply dynamics and an attractive risk-reward ratio for those looking to make additional or new investments.
“Reserve risk remains in the green zone, meaning buying BTC at current levels still offers exceptional reward to risk. Investing in Bitcoin during periods when reserve risk has produced outsized returns over time is key,” MintingM, an India-based crypto research firm, told CoinDesk.
Bitcoin’s reserve risk. (CryptoQuant/@joao_wedson)
Reserve risk tends to fluctuate in sync with bull and bear trends. Historically, the green zone below 0.0027 has marked a slow transition from the final stages of a bear market to a bull market. Readings above 0.02 have marked bull market peaks.
Other indicators that measure the percentage of supply that is inactive over a given period also suggest a return to a holding strategy following record profit taking earlier this year.
“Bitcoin bull markets naturally attract selling pressure, as higher prices encourage long-term holders to profit from some of their holdings. We can observe this phenomenon from the significant decline in the Supply Last Active 1y+ and 2y+ metrics in March and April,” blockchain analytics firm Glassnode said in its weekly report. “The rate of decline in these curves has slowed recently, suggesting a gradual return to HODLing as the dominant investor behavior.”
The persistent bullish messages from on-chain indicators are consistent with the market consensus that the upcoming interest rate cuts by the US Federal Reserve will lead Bitcoin to break out of the prolonged range between $60,000 and $70,000.
Bitcoin changed hands at $64,420, up 0.3% in 24 hours, according to CoinDesk data.