Reserve Risk is a metric that indicates how secure and sustainable the amount of reserves supporting the price of a cryptoasset is. This metric is used to assess the risks that could potentially affect the price of cryptoassets.
Reserve Risk is usually expressed as the ratio of the price of a crypto asset and the amount of reserves.
Reserve Risk is an indicator developed to assess the confidence of long-term investors in the price of Bitcoin.
HODL Bank
When traders HODL Bitcoin that they bought at a low price and do not sell it at a high price, this is considered "opportunity cost".
Opportunity cost is "the value of the best alternative that you have to give up when you make a decision".
The HODL Bank is obtained by summing the opportunity cost over time to the total USD amount, thus arriving at a cumulative opportunity cost.
If investor confidence is high but the price is low, Reserve Risk is low; conversely, if confidence is low but the price is high, Reserve Risk is high.
How to Calculate?
The Reserve Risk formula is calculated as the Bitcoin price divided by the HODL Bank value.
Critical Levels for Reserve Risk
Critical levels: 0.001-0.0027, 0.004, 0.008, 0.010, 0.020
If the Reserve Risk is between 0.0010 and 0.0027, it represents an ideal buying opportunity for Bitcoin.
Since it is not known how long the Reserve Risk will stay in this zone, gradual buying is considered a more appropriate strategy.
When the historical data is analyzed, it was observed that the market bottomed 4 times with great determination while the Reserve Risk was in this region.
If the Reserve Risk is above 0.02, it means a possible sell for Bitcoin.
Historical data shows that when the Reserve Risk was in this region, the market peaked 4 times with great determination.
During the Ascension
0.0010 level:
Below this level can be considered as a strong buying point.
0.0027 level:
When the historical data is analyzed, it is observed that when the Reserve Risk exceeds the 0.0027 level, the Bitcoin price is preparing for a long bullish period.
0.020 level:
At this level, when Reserve Risk values reach very high levels, it can be interpreted that the price is now in the zone of high but low confidence.
When historical data is analyzed, it can be observed that at levels above 0.020, Bitcoin made an ATH and then the market generally started to decline.
During the Downturn
0.020 level:
When Reserve Risk falls below this critical level, historical data shows that the Bitcoin price starts to fall sharply.
0.010 level:
The 0.010 level could mean that the decline in Reserve Risk continues.
In 2013, when this area was first lost, Reserve Risk bounced back from the 0.06 area and continued to rise, leading to an ATH in Bitcoin.
However, after the 0.010 level was broken in 2011 and 2017, the decline continued.
0.008 level:
A break below the 0.008 level, which is a critical support level for Reserve Risk, can be interpreted as a continuation of the decline in Bitcoin price.
0.004 level:
A break below the 0.004 level could take Reserve Risk to the 0.0027 region. This could mean that the market will move towards the bottom.
0.0027 level:
This is a critical area for Reserve Risk. This area can be considered the area where confidence in Bitcoin is the highest compared to other areas.
When historical data is analyzed, it can be observed that Bitcoin purchases made in this area between 0.0027 and 0.001 are extremely profitable in the long run. After entering this area, "decline and accumulation" can take a long time. Therefore, gradual buying in this area may be an appropriate strategy.
Reserve Risk Score Critical Levels
Reserve Risk Usage on Traderlands
Implementation in Traderlands Strategy Creator
You can start creating a strategy by selecting the "Reserve Risk" indicator from the list of indicators. An example strategy is shown in the image below. You can use the Reserve Risk indicator in a way that suits you, by creating it in line with your research.
This is how you can set rules that allow you to buy when the Reserve Risk value breaks 0.5 to the upside and sell with various Stop Loss, Trade Duration, etc. values.
Backtest Result
1-year backtest result for BTC pair
WARNING: The entry and exit strategies in the images are for educational purposes to explain the indicators. They do not guarantee any profit.
When designing an Algorithmic Trading strategy, multiple indicators are usually linked together to form a set of rules.
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