Definition. The Illiquid Supply Shock (ISS) Ratio is calculated as the ratio between Illiquid Supply, and the sum of Liquid and Highly Liquid Supply. This metric attempts to model the probability of a Supply Shock forming, whereby fewer coins are available relative to the current demand trend.

Technical. Liquidity classifications are entity-based: each entity's liquidity is quantified from the ratio of its cumulative outflows to cumulative inflows, partitioning supply into Illiquid, Liquid and Highly Liquid components.

• ISS Ratio = Illiquid Supply / (Liquid Supply + Highly Liquid Supply)

Price is shown in grey for reference.

Interpretation. Where coins are primarily flowing out of liquid circulation — being absorbed by entities with little history of spending — the ISS Ratio will trend higher, suggesting increased probability of a supply shock. Conversely, downtrends in the ISS Ratio occur as illiquid coins are spent back into liquid circulation, reducing the probability of a supply shock. Sustained uptrends are characteristic of strong accumulation and HODLing regimes, tightening the pool of coins available to the market; sharp declines typically accompany distribution and capitulation events, when dormant supply is re-mobilized. As with all supply-side models, the ratio describes availability, not demand — supply-shock conditions matter most when demand is simultaneously expanding.

Notes. Coined by Will Clemente and Willy Woo; see Supply Shock, predicting price by quantifying intent to buy and sell, 10-Aug-2021. Built from Illiquid Supply, Liquid Supply and Highly Liquid Supply.