It indicates the relationship of the price of bitcoin to the confidence that long-term BTC holders have at a given point in time.

Reserve Risk = Current Price of Bitcoin / Cumulative Opportunity Cost (HODL Bank)

When confidence is high and the price is low (green zone), there is an attractive risk/reward ratio to invest in bitcoin at that time.

When confidence is low and the price is high (red zone), the risk/reward ratio is not interesting.
Investing in Bitcoin during periods when reserve risk is in the green zone has produced outsized returns over time.

VOCDD: Value of Coin (Days) Destroyed
MVOCDD: Median Value of Coin (Days) Destroyed

When VOCDD and MVOCDD exceed the price of BTC, it usually indicates profit-taking by long-term investors and may mean a possible price pullback.

Bitcoin Reserve Risk A metric that assesses the risk/reward of holding Bitcoin at a given price level relative to the confidence of long-term holders.

Hodler Confidence: Measures the confidence of long-term Bitcoin holders (HODLers) by looking at the aggregate behavior of investors who have held Bitcoin for a significant period without selling. If HODLers do not move their coins much, it indicates high confidence.

Price Incentive: This is the incentive or pressure to sell Bitcoin based on its current price relative to historical levels. As the price increases, the incentive to sell typically increases.

When Reserve Risk is low, it suggests that long-term holders have high confidence and the price is relatively low compared to their confidence level. This indicates an attractive risk/reward ratio, meaning it could be a good time to buy.

When Reserve Risk is high, it suggests that long-term holders may be losing confidence, or that the price is high relative to their confidence. This implies a less favorable risk/reward ratio and could indicate an overvalued market, which could be a time to sell or be cautious.

Low Reserve Risk (< 0.002): Historically, this has been a good time to accumulate Bitcoin, as long-term holders are showing strong conviction, and the price is relatively low.

High Reserve Risk (> 0.02): This suggests a high risk/reward ratio, where the price might be overextended, and selling pressure could increase.