What is it: Previously we have discussed dormancy flow. Entity adjusted dormancy flow considers the market cap of Bitcoin over the annualized dormancy rate. Giving us the formula:
The indicators are a measure for considering the network value (all BTC) relative to its moving average of realized dormancy in USD.
This tells us that if the dormancy rate (which is coin days destroyed relative to volume) combined with price and at a yearly moving average is larger or smaller than the market cap, and vice versa. This means that the value of the market cap is either overvalued or undervalued relative to the sum of coins in transaction without the noise of normal trading volume.
What does it indicate: What the dormancy flow provides is an indicator that is ideal for bottom-catching and assessing the health of the bull market conditions.
For example, if in a bull market: If the market cap is very high relative to its dormancy rate, the conviction is still price increase. Meaning that the overall health of the bull-market is high. This is because the price remains high relative to the spending behaviour of the market.
Another example is in bear markets, here the dormancy flow does historically very well at catching bottoms, as the dormancy flow overtakes market cap. Which means that the market has capitalized by overselling, which is historically a good buy zone.
Here is a link to the original article put forward by David Puell: https://medium.com/@kenoshaking/bitcoin-average-dormancy-28f88ea4c2ce
//DL
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- Source: https://medium.com/@Dimitri_Lousteau/bitcoin-on-chain-indicators-entity-adjusted-dormancy-flow-c29427066033?source=rss——cryptocurrency-5
