A rare Bullish signal in Bitcoin’s bullish history has reappeared. It is an on-chain signal called Dormancy Flow (roughly translated as hibernation flow).
Dormancy Flow (hibernating flow) returns to the low, opening a buy signal
Please take a look at the following chart showing the volatility of Dormancy Flow and we will dive into the interpretation of this on-chain indicator to understand its message.
- Throughout the history of Bitcoin price growth, Dormancy Flow has only shown buy signals exactly 5 times at the right major market bottoms. Since these bottoms, the Bitcoin price has always entered a strong bull cycle.
- And in these early days of 2022, a buy signal from the onchain Dormancy FLow indicator appeared once again. This is arguably one of the best performing onchain signals ever. It appears very rarely, but when it does, it gives high reliability.
Why is a low Dormancy FLow a good buy signal? That’s because the meaning and construction of this indicator shows the following message.
Why is a low Dormancy FLow a good buy signal?
Will Clemente is one of the twitter accounts that follow this indicator and it helped Will accurately predict the Bitcoin bottom in July 2021. Just yesterday, Will also spoke up when this buy signal appeared again.
Bitcoin entering the Buy Zone on Dormancy Flow.
This bottoming signal has only flashed 5 times before in Bitcoin’s history. pic.twitter.com/0P36jYMzvw
— Will Clemente (@WClementeIII) January 11, 2022
To understand the meaning of Dormancy Flow (hibernating flow) you need to understand some of the following concepts:
- The first is Bitcoin’s destruction days. The longer a Bitcoin stays in the wallet before the owner decides to spend it, the longer its destruction days. If you are a holder with a “diamond hand”, your BTC will have a very large number of days of destruction. It can be understood as the number of days of “hibernation” of that BTC.
- Then divide this number of days by the corresponding total BTC. This ratio is called Dormancy. The higher the Dormancy, the more “old players” are starting to participate in releasing their BTC into the market.
- Not stopping, Dormancy Flow is taking the total market capitalization at the time of calculation divided by the total value of the amount of hibernated BTC (Dormancy multiplied by the BTC price of MA365). Then the lower the Dormancy Flow, the lower the market capitalization is (BTC price falling) while the market is left with only long-term holders who are distributing their BTC. And the new players were wiped out of BTC. This predicts a new uptrend.
That is why many on-chain analysts confident in the near-term BTC price increase remember the appearance of this signal.