The chart above shows what percentage of the UTXO set is at which age. Note that the “5y” group has increased dramatically (shown by moving down in this case) and now accounts for more than 20% of all Bitcoin in circulation (over $30B at this time).

Compare this with the static sideways action of the seven-day segment for example. Essentially, short-term speculation has remained relatively constant while long-term holding is constantly increasing. We find this to be deeply bullish.

What are Bitcoin Days?

Bitcoin days are defined as the quantity of Bitcoin multiplied by the number of days since those coins were moved. The idea here is to segment coins in circulation into the Vet and Newb buckets. Of course, we could attempt to identify as many groups as we like - lost coins; algo market makers; the Winklevoss twins; etc. But the swing traders (or Swing HODLers if you prefer) would be somewhere between Newbs and Vets, who hold Bitcoin for 1-3 years and attempt to capitalize on the patterns of bubbles that have emerged over time. More on the Swing HODLers later.

By assigning a higher value to a coin that has been idle for longer, Bitcoin days more accurately reflect market participants who have been in the ecosystem for longer. Since the price has increased markedly over time, these users have seen their investments multiplied by orders of magnitude. In other words, a newcomer selling one Bitcoin he bought last week is less meaningful than the movements of very old coins owned by the participants from the early days.

Why do Bitcoin Days accumulate?

Bitcoin days accumulate over time because Bitcoin is not a perfect method of exchange (MoE). We can imagine a world where each Bitcoin is exchanged with someone else or for something else each day. If we lived in that world, Bitcoin days would never accrue.

We will revisit this concept in a moment.

What are Bitcoin Days Destroyed?

Now that we understand how Bitcoin days are created, let’s talk about how they are destroyed. Once a Bitcoin has been idle for a period of time, moving that Bitcoin “destroys” the number of days that it has accrued. As an example, if I purchased 1 Bitcoin and held it for 7 days, when I move that Bitcoin from my wallet the Bitcoin days are considered destroyed. One BTC held for 7 days would destroy 7 Bitcoin Days when it was moved (7 BDD).

The Bitcoin itself is not actually destroyed here, just to be clear. BDD is just a metric. Rather it’s assumed that the Bitcoin has been used to purchase something (Pizza, Lambo, etc), or it was moved to an exchange to be sold and now has a new owner.

There are two noteworthy points we should mention before proceeding:

Exchange operators hold large amounts of Bitcoin. From time to time they may need to move cold wallet funds to upgrade their wallets, or for other reasons. This movement can be misclassified as “whales cashing out” when it’s actually a nonevent. The number of Bitcoin in circulation is increasing over time. Therefore, the number of Bitcoin days that are created each day is increasing too. If we simply look at the number of BDD over time, it at first appears that an exit stampede is underway.

To understand this more fully, consider the following chart that simply displays the number of BDD over time.