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Author Topic: Scaled Days Destroyed: Is a record high FX rate freeing cold storage bitcoins?  (Read 1277 times)
solex
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March 30, 2013, 04:32:12 AM
Last edit: March 30, 2013, 08:40:49 PM by solex
 #1

Cold storage coins into the hot furnace of the marketplace...

Generally speaking, it is "good" for Bitcoin if the current issuance, now 10.9 million, is spread across many users and investors. It can be considered "bad" if a large percentage of bitcoins remain locked up by the earliest adopters. This is not a black-and-white situation as saving/investing/hoarding is good for a currency, but so is widespread spending and usage. Too many coins locked up means an artificially high exchange rate prevails, which can be tanked at any time by a sudden disinvestment resulting in instability, disruption of product pricing, and bad press.

So, the question for which I invite comment, and hopefully quantitative analysis:
"Is the 2013 peak (or plateau) bringing many coins out of cold storage which have been untouched for two years, and further, are better charts possible showing granularity in variously aged coins being transacted."

Days Destroyed (DD)

Blockchain transactional analysis for movement of aged coins is done by examining each input address:

Days Destroyed = Num Coins * Age In Days

So a bitcoin spent after 100 days in a wallet has the same DD as 100 BTC spent after 1 day in a wallet.

In 2011 the rise to the temporary peak at $31 clearly brought a lot of early cold storage coins into general circulation, as evidenced in the all-time chart of Bitcoin days destroyed filtered by minimum of one year:
http://blockchain.info/charts/bitcoin-days-destroyed-min-year?showDataPoints=false&timespan=all&show_header=true&daysAverageString=7&scale=0&address=

The situation in 2013 shows a similar rise, but smaller, although for a more sustained period:
http://blockchain.info/charts/bitcoin-days-destroyed-min-year?timespan=1year&showDataPoints=false&daysAverageString=7&show_header=true&scale=0&address=

Scaled Days Destroyed (SDD)

The assumption here is that it is an improvement by using a power factor on Bitcoin days destroyed giving much greater weight to the movement of aged coins instead of the linear relationship inherent in DD.

Scaled Days Destroyed = Num Coins * (Age In Days)Power Factor

The most useful power factor for this analysis could be somewhere between 1 and 2. Assuming it is 2, a single bitcoin spent after 10 days in a wallet would have 100 times the SDD as one bitcoin spent after one day in a wallet, or 100-fold increase in weighting per 10-fold increase in age.
What effect does this have on daily or weekly charts? Coins moved after a few years would be very significant.

Could a SDD violin chart (similar to the one linked below) be the ultimate quick visual reference for the movement of aged coins?
https://bitcointalk.org/index.php?topic=101902.msg1633247#msg1633247

What do you think?


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March 30, 2013, 06:12:26 PM
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It's a great idea. It makes intuitive sense. Someone skilled in math could offer you better feedback than I can. Looking forward to some discussion among the tech and quant sides of the forum about how this could be implemented. Thanks!
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March 30, 2013, 09:06:32 PM
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It's a great idea. It makes intuitive sense. Someone skilled in math could offer you better feedback than I can. Looking forward to some discussion among the tech and quant sides of the forum about how this could be implemented. Thanks!

I'm not sure what the benefit is.  It would have huge spikes when very old coins are spent.  We have the three graphs filtered by 1 week to 1 year that should do some of what the intention of scaled days destroyed should do. 

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March 31, 2013, 01:38:06 AM
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It's a great idea. It makes intuitive sense. Someone skilled in math could offer you better feedback than I can. Looking forward to some discussion among the tech and quant sides of the forum about how this could be implemented. Thanks!

I'm not sure what the benefit is.  It would have huge spikes when very old coins are spent.  We have the three graphs filtered by 1 week to 1 year that should do some of what the intention of scaled days destroyed should do. 

You can change the power factor until you're satisfied. And the benefit is exactly to warn people when large amount of old coins got moved, as this maybe someone ready to convert into fiats.

https://tlsnotary.org/ Fraud proofing decentralized fiat-Bitcoin trading.
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March 31, 2013, 02:37:03 AM
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I think the old coins belong to Mt Gox, and they are moving out of cold storage because Coinbase is buying from there and withdrawing them. The people who buy from Coinbase are taking possession of their bitcoins instead of leaving them on the exchange to speculate with.
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