Accumulation Trend Score
The Accumulation Trend Score is an indicator which reflects the relative size of entities that are actively accumulating/distributing coins on-chain in terms of their BTC holdings.
The Accumulation Trend Score is an indicator which reflects the relative size of entities that are actively accumulating/distributing coins on-chain in terms of their BTC holdings. The scale of the Accumulation Trend Score represents both the size of the entities balance (their participation score), and the amount of new coins they have acquired/sold over the last month (their balance change score).
An Accumulation Trend Score of closer to 1 indicates that on aggregate, larger entities (or a big part of the network) are accumulating, and a value closer to 0 indicates they are distributing or not accumulating. This provides insight into the balance size of market participants, and their accumulation behavior over the last month.
- A score closer to 1 reflects that, over the last month, big participants (or a big part of the network) have been accumulating coins.
- A score closer to 0 reflects that, over the last month, big participants haven’t been accumulating coins or that they have been selling them.
The Accumulation Trend Score is measured following the next steps:
- 1.For each day, every entity's participation score is calculated by the amount of coins they hold out of the total supply.For example, an entity owning 10 coins when the amount of supply is 100 coins would have a 10/100 = 10% participation score.Exchanges and miners are excluded.
- 2.For each entity, the daily accumulation or offload of coins is calculated in terms of the relative balance change, in a way that it never exceeds +100% or -100% of their balance.
- 3.The accumulation ratio is then calculated by multiplying the participation score and the balance change. The idea behind the accumulation ratio is to have a weighted participation score in terms of the relative balance change, so that big players accumulating would have a bigger impact than low players accumulating. This accumulation ratio is computed for both buys (positive balance changes) and sells (negative balance changes).As set by the constraint in the point 2, one entity can never have an accumulation ratio which exceed its participation score, no matter how much it accumulates, because the maximum and minimum relative balance change are limited. This prevents low players with high balance changes to affect the computation of the metric.In certain cases, if a really big part of the network greatly accumulates, it is enough to trigger a high accumulation ratio, given that their combined participation score may be huge.
- 4.The accumulation score is then computed by adding up all of the accumulation ratios of every participant together over the last month for both buys and sells.
- 5.Given the fact that the concept of what big participant is has changed over time (having 20 BTC in 2010 is not the same as having 20 BTC in 2021), visibility is enhanced by normalizing the values using a 90 days window. Therefore, different time ranges are comparable. The normalization formula for each window is the following, and its applied for both buys and sells:
6. After the scaling, the accumulation ratio is computed by subtracting the buys minus the sells.
The market sentiment is a good indicator of the price action. When the participants in the market are feeling bullish, they accumulate coins, which increases the demand and therefore the price. When they are feeling bearish, they offload coins, which increase the liquid supply to be absorbed, therefore reducing the price. One could argue that not every participant has the same impact on the price, and larger holders tend to make a bigger impact than smaller ones.
This metric aims to provide insights on who is behind the price action, whether they are big players, which are able to move the price in a sustained way, or small players, which usually struggle to sustain positive price action over longer time periods.
In general, a higher score (closer to 1) implies that big participants have been accumulating for the last month, and a lower score (closer to 0) means that those big participants are either selling or not accumulating.
Keep in mind that scores are scaled over a 90 day window, so consecutive 1’s are possible. This would mean that each consecutive day there has been a new all time high of the score during the last 90 days. The same can happen with consecutive 0’s.
The Accumulation Trend Score can be a useful tool to measure a variety of market behaviors.
When both the price and the score go up, the positive price action is probably going to be sustained, because the rally is mainly caused by big players accumulating (green). On the other hand, when the ratio cools down, the positive price action can't be sustained by the small players, so the price usually goes sideways and ends up losing momentum (red).
High scores during drawdowns may indicate that the price is near a bottom, because the big players are starting to accumulate at what they think is a good opportunity (green). This accumulation during drawdowns is often followed by a price recovery.
Original concept pioneered by @ecoinometrics (https://ecoinometrics.substack.com/p/ecoinometrics-on-chain-participation)
Methodology presented here is refined and developed by Glassnode