What is Bitcoin Days Destroyed? Why is it important?

Like any financial market, the crypto market is full of metrics that allow us to understand where you stand. Thus, from the volume of transactions per day, to the price variations and the ranking of the main exchanges, all these data allow us to plan an investment strategy. However, one of the most important metrics of the crypto world is very little known, so today we explain what Bitcoin Days Destroyed is and what its importance is.

Institutional investment in Bitcoin increases during 2020 according to Grayscale
Bitcoin Days Destroyed (BDD)

The crypto world is full of facts and figures. So many that sometimes it is difficult to locate the information we need at any given time, to know how to act within the market. Or even worse, we find ourselves with data that we are not quite sure what it is for. This is often the case with Bitcoin Days Destroyed (BDD).

Because Bitcoin Days Destroyed is a measure to visualize the volume of transactions in the crypto market. This is measured by multiplying the number of Bitcoins traded in any given trade by the number of days since the last time those same BTCs were moved.

That is, let’s say we buy 100 Bitcoins on Monday and sell them on Friday. Five days have passed, which will be multiplied by the 100 Bitcoins to give a total of 500 BTCs. Now, if the person who bought the crypt coins from us sells them again on Sunday, two days will have passed, so the value of BDD will be 200 BTC.

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What is this for?
However, if the concept of Bitcoin Destroyed Days is not difficult to understand once it is explained with an example, it still remains to be clarified what its usefulness is in practical terms. Well, at the end of the day, it’s not at all obvious what we can do by knowing the multiplication between the number of Bitcoins traded, and the number of days since their last operation.

In this sense, CoinDesk’s Senior Analyst, Galen Moore, commented in the CoinDesk Crypto Podcast Network, what is the importance of the BDD. He explained that it would be a metric for the behavior of investors in the long term:

„(BDD) is a metric that reflects the collective action of long-term holders (…) What is the psychology of a long-term holder? You can see it in a collective way (through BDD) in a way that I don’t think is possible in other asset categories“.

Therefore, thanks to the use of Bitcoin Days Destroyed, any user or investor in the crypto world can observe the trends of large Crypto Trader holders.

So, when this metric starts to increase, we know that the holders are trading their crypto currencies. While if it decreases, we understand that there is a trend towards saving, rather than trading. All of which allows us to be more effective when planning our investment strategy.