Reserve Risk
Combines price with HODLer confidence to identify optimal buying zones and market tops based on long-term holder behavior
Reserve Risk
Measures risk/reward based on HODLer confidence and price - identifies optimal entry and exit points
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Lower values: Low risk, high reward | Higher values: High risk, low reward
Understanding Reserve Risk: Reserve Risk combines price relative to realized price with HODLer confidence. Low values indicate strong holder conviction at reasonable prices (low risk, high reward). High values show weak conviction at elevated prices (high risk, low reward). Created by Hans Hauge, it's proven highly effective at identifying cycle extremes.
Reserve Risk Zones
Historical Performance: Reserve Risk has successfully identified every major Bitcoin bottom since 2011 when dropping below 0.002 (Mar 2020, Dec 2018, Jan 2015). It has also warned of major tops when exceeding 0.02 (Dec 2017, Apr 2021). The metric's effectiveness comes from combining price action with actual holder behavior, not just sentiment.
Risk/Reward Framework
- • High HODLer confidence
- • Price below or near cost basis
- • Strong hands accumulating
- • Low risk, high potential reward
- • Historically best buying opportunities
- • Low HODLer confidence
- • Price significantly above cost basis
- • Weak hands dominant
- • High risk, low potential reward
- • Historically preceded major tops
On-Chain Analysis: Measures risk/reward based on holder confidence and price
Understanding Reserve Risk
Reserve Risk is an oscillator that visualizes the risk-reward of Bitcoin at any given time. It measures the confidence of long-term holders (HODLers) relative to the price of Bitcoin. The metric is derived from a combination of Bitcoin price and the "HODL Bank," which represents the supply held by long-term holders.
The formula is: Reserve Risk = (Price / Realized Price) / HODL Bank. When Reserve Risk is low (< 0.002), it indicates high HODLer confidence and presents attractive buying opportunities. When Reserve Risk is high (> 0.02), it signals low HODLer confidence and elevated risk of a market top.
Created by Hans Hauge in 2019, Reserve Risk has proven remarkably effective at identifying Bitcoin market bottoms and tops. The indicator works on the principle that when long-term holders are highly confident (large HODL Bank) and price is relatively low compared to realized price, the risk of holding Bitcoin is minimal. Conversely, when confidence wanes and price is elevated, risk increases significantly.
Key Features:
- • Risk/Reward Assessment: Low values indicate low risk and high reward, perfect for accumulation.
- • HODLer Confidence: Incorporates long-term holder behavior to gauge market conviction.
- • Cycle Extremes: Effectively identifies both major bottoms (< 0.002) and tops (> 0.02).
- • Mean Reversion: Values naturally oscillate, making extremes highly predictive.
How to Use Reserve Risk
For Buying Strategy:
Reserve Risk below 0.002 (Deep Value) represents the most attractive buying opportunities. This signals that long-term holders are extremely confident and price is low relative to cost basis. Values between 0.002-0.005 (Attractive) also represent good accumulation zones. These levels have historically marked major bear market bottoms.
For Selling Strategy:
Reserve Risk above 0.02 (High Risk) indicates that long-term holders are losing confidence and price is elevated. Values above 0.03 (Extreme Risk) have historically marked cycle tops. Consider taking profits or reducing exposure when Reserve Risk enters high/extreme territory.
For Risk Management:
Use Reserve Risk to size positions dynamically. Increase allocation aggressively when < 0.002, moderately when 0.002-0.005, maintain when 0.005-0.01, reduce when 0.01-0.02, and exit aggressively when > 0.02. This creates a systematic approach to risk management.
Combined Analysis:
Reserve Risk is most powerful when combined with other on-chain metrics like NUPL, MVRV Z-Score, and RHODL Ratio. When multiple indicators show extreme readings simultaneously, conviction in signals increases dramatically.
Pro Tips:
- • Reserve Risk < 0.002 = Deep value - best buying opportunities
- • Reserve Risk 0.002-0.005 = Attractive - good accumulation zone
- • Reserve Risk 0.005-0.01 = Neutral - hold positions
- • Reserve Risk 0.01-0.02 = Elevated - reduce exposure
- • Reserve Risk > 0.02 = High risk - take profits
- • Reserve Risk > 0.03 = Extreme risk - major top warning
- • Lower values = higher HODLer confidence
- • Combine with NUPL and MVRV for confirmation
- • Best for strategic position sizing over months
- • Ignore short-term fluctuations, focus on extremes
Calculation Methodology
Reserve Risk combines two components: (1) Price relative to Realized Price (cost basis), and (2) the HODL Bank (supply held by long-term holders). Price/Realized Price shows whether Bitcoin is trading above or below its aggregate cost basis. The HODL Bank measures long-term holder confidence - when high, experienced holders are accumulating or holding. Dividing the price ratio by HODL Bank gives Reserve Risk. Low values indicate strong conviction with reasonable prices (low risk), while high values show weak conviction with elevated prices (high risk).
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