The Reserve Risk is a metric to analyze the trust of the holders of an asset. Currently, it shows high trust among Bitcoin holders.
A recent analysis conducted by the Glassnode team indicates that Bitcoin’s reserve risk is at low levels that had not been seen since early 2016. The Reserve Risk is a metric used to analyze the trust of the holders of an asset, in the long term, regarding its price in a given time.
To better understand the Reserve Risk, it can be defined as the division between the price of the digital asset and the HODL Bank. The latter represents the deferred expenditure for doing HODL, that is, the action of saving cryptocurrencies for long periods. This allows showing the level of trust existing among investors.
A low Reserve Risk means that user trust is high and the price is low, which makes investing in the cryptocurrency attractive. On the contrary, if the Reserve Risk is high, the attractiveness of the cryptocurrency decreases as investor trust is low.
High Market Expectations and Trust Go Hand in Hand
The fact that the Reserve Risk is currently low allows for an attractive relationship between risk and the reward received from investing in Bitcoin. This raises the possibility of an imminent growth of the main cryptocurrency in the market.
The current behavior of Bitcoin’s price allows observing that the cryptocurrency remains solid at the same time as its adoption grows rapidly. Of course, this inevitably feeds the trust built over time between Bitcoin holders and those wanting to invest in the crypto asset.
This adds to the high expectations of the cryptocurrency market to be able to see, in the upcoming months, a bullish trend driven by the next Bitcoin halving, which is expected for May 2020.
Year 2020 Is Becoming Bitcoin’s Perfect Storm
Since the beginning of the year, it has been possible to appreciate the behavior of Bitcoin and several other cryptocurrencies in the market. They have shown a bullish trend that seems to threaten the bearish trend that marked the second quarter of 2019.
The coronavirus has been one of the main catalysts of the bullish momentum shown by Bitcoin since the beginning of the year. The panic that this terrible disease has caused worldwide has harmed the traditional market.
This has been such a serious situation that the US Federal Reserve recently had to take an emergency measure. The central bank cut its interest rates to prevent the economic recession that the country might experience after the attempts to contain the disease.
On the other hand, on March 4th, the Supreme Court of India eliminated the prohibition on the trading of cryptocurrencies in the Asian country. This could add to the other factors of the bullish sentiment that the cryptocurrency market is experiencing by creating expectations that go hand in hand with the possible adoption by a market that has 1.3 billion inhabitants.
By Willmen Blanco