Someone on Reddit asked for an educated guess about the dramatic change in the Bitcoin Days Destroyed chart from blockchain.info. The answer is rather obvious. The spike directly relates to the April 2013 bubble and burst in bitcoin valuation. But examination of the data that proves this might be interesting for some.
Bitcoin Days Destroyed is a means for weighting the movement of coin between addresses by its age. It is an attempt to show when those holding coin for a long time start to move it.
If someone has 100BTC that they received a week ago and they spend it then 700 bitcoin days have been destroyed. If they take those 100BTC and send them to several addresses and then spend them then although the total transaction volume could be arbitrarily large the number of bitcoindays destroyed is still 700.
For example, on March 30th 2013 the 3rd richest bitcoin address 1Co6UHJmGHevWEHAPraSPRVkfGgG46EHwe moved the lions share of funds, 45,000K+ BTC, to a new address 17UUsmejDsjJEtbRcotd289ADp7ZdanH5k (making it the 2nd richest bitcoin address). The majority of BTC sat in 1Co6U for about 6 months. Slowly accumulating from middle 2012 until end of 2012 by what appears to be mining operations. The movement on March 30 of 45k would amount to around 7,000,000+ bitcoindays destroyed, by a rough guess.
The spike however that the Reddit author noted is not from an individual movement such as 1Co6U but rather the result of the volatility from the bitcoin crash of April 10th 2013. The following shows two charts from blockchain.info. Gray is Bitcoin Days Destroyed and the Red is the BTC price.
April 1st was a major upward trend in the exchange rate of BTC. April 10th was the burst of a bubble. April 12 it hit bottom. April 16 it hit bottom again. By April 19 things stabilised. If you relate this to the bitcoin days destroyed you’ll see major movements from April 1 to April 19.
The author on reddit hypothesised that the movement of Bitcoin Days Destroyed seems to indicate that major holders were dumping shares for a while but stopped recently. Their conclusion was that the price stabilisation around $120 of the past few weeks was a result of this activity and that one should expect it to rise now that Bitcoin Days Destroyed has stabilised. This is a misplaced assumption. From the data one sees that the dramatic change in Bitcoin Days Destroyed was a result the volatility and crash. It stopped around April 19. To speculate on why the $120 exchange rate has held, or is changing, one will have to look elsewhere.