The RHODL Ratio provides analysis of the Bitcoin market's dynamics by comparing the relative spending behavior of different coin age groups. It measures the ratio of the Realized Cap of recently moved coins (short-term holders) to the Realized Cap of coins that haven't moved for a longer period (long-term holders). A high RHODL Ratio indicates a market increasingly dominated by short-term speculation, often correlating with market tops as older coins are sold into the rally. Conversely, a low RHODL Ratio suggests a market where long-term holding prevails, typically seen at market bottoms or during accumulation phases.
CAB's analytical prowess comes from its ability to discern the underlying sentiment driving market movements. For instance:
- High RHODL Ratio Scenarios: When a significant volume of older coins becomes active, it signals that long-term holders are cashing out, likely at a profit. This movement can flood the market with supply, potentially leading to a price correction. The CAB model interprets this activity as a bearish signal, with the Price Indicator moving towards the higher end of the spectrum.
- Low RHODL Ratio Scenarios: In contrast, when older coins remain dormant, demonstrating long-term holder conviction, the reduced market supply tends to support price stability or growth. This behavior is captured as a bullish signal by the CAB model, resulting in a lower Price Indicator value.
The model emphasizes on long-term market trends over short-term fluctuations, employing a smoothing technique that averages behaviors over extended periods. This method mitigates the impact of transient volatility, ensuring the Price Indicator reflects a more consistent and reliable measure of market sentiment.