What is CDD & Liveliness
CDD, Coin Days Destroyed, is an indicator that measures the level of activeness of Bitcoin transactions. It is calculated based on the lifespan (holding time) and volume of Bitcoin involved in each transaction. In simple terms, it represents the sum of lifespans for all spent Bitcoins on a given day. CDD reflects the state of Bitcoin which has been idle for a long time.
CDD = Trading volume × Lifespan
- Trading Volume = Number of Bitcoin involved in a specific transaction
- Lifespan = Holding time/Unused time of Bitcoin before the transaction (measured in days)
The CDD indicator can be used to measure the liquidity and activeness of Bitcoin and reflect macro market trends. CDD is calculated based on the holding time of Bitcoin, making it useful for capturing behavioral changes among long-term holders. Therefore, it is considered an important tool for assessing the spending behavior of whales and long-term investors.
- When CDD is high, it indicates an increase in Bitcoin's trading activity. There is a significant influx of long-dormant bitcoins into the market (which can also be understood as a large number of long-term holders trading within a short period). The market experiences high liquidity and frequent trading, leading to greater short-term price volatility. Historically, this situation has often occurred during bull markets.
- When CDD is low, it indicates a decrease in Bitcoin's trading activity, resulting in a more stable market. Investors are more inclined to hold Bitcoin for the long term rather than actively buying and selling. As a result, the price of Bitcoin tends to exhibit relatively smaller fluctuations during this phase. This situation typically occurs during bear markets or price consolidation periods.
From the chart below, it is evident that from October to November in the year 2021, CDD consistently increased, indicating a bull market cycle approaching its peak.
Liveliness is also an indicator that measures asset holder behavior and activity. It is calculated based on CDD and can be used to assess the holding patterns and trading behavior of long-term holders. Unlike CDD, which is calculated on a daily basis, Liveliness reflects the macro market conditions over a specific period of time.
Liveliness = Cumulative CDD / Cumulative Total Supply = Volume * Lifespan (of all outputs ever spent) / Volume * Lifespan (of all outputs ever created)
- Cumulative CDD = Accumulated CDD of the asset over a recent period of time = Volume * Lifespan (the Lifespan of all bitcoins with transaction activities in the market)
- Cumulative Total Supply = Lifespan of the accumulated total supply of the asset in the entire market = Volume * Lifespan (the Lifespan of all Bitcoins in the market)
Liveliness helps investors understand the behavior patterns of Bitcoin holders. It reflects the trading activity and liquidity of Bitcoin over a certain period of time. The values of Liveliness typically range between 0 and 1.
- A low value of Liveliness indicates that most holders have chosen to hold Bitcoin for the long term without engaging in frequent trading, resulting in lower on-chain activity. The market tends to be more stable.
- A high value of Liveliness indicates a large volume of Bitcoin being traded within a short period of time, indicating higher on-chain activity. The market tends to have higher trading activity.
- An increasing trend in Liveliness suggests an increase in on-chain activity, with dormant coins being re-entered into the market, thereby increasing market liquidity. This situation is often associated with a bull market.
- A decreasing trend in Liveliness suggests a decline in on-chain activity, with a large number of coins entering a dormant state, resulting in lower market liquidity. This situation is often associated with a bear market.
Historically, Bitcoin's Liveliness has clearly reflected market cycles. For example, in early 2021, the market experienced a brief bull market. Bitcoin Liveliness showed an upward trend during that period, indicating a significant increase in on-chain activity.
What else do you want to learn?