The STH Sell-Side Risk Ratio is calculated by taking the sum of all profits and losses realized on-chain, and dividing it by the realized cap. This metric therefore compares the total USD value that investors spending each day, to the total STH realized capitalization.
This methodology quantifies the aggregate sell-side risk in the market. It assumes that all profit and loss realized on-chain are a potential source of sell-side pressure. Division by realized cap provides normalization over time as it will increase or decrease relative to changes in all-time capital inflows/outflows to the asset.
This metric provides a comprehensive story about market cycles:
↗️ High values are associated with periods of high value realization, typically associated with heavy profit taking by coins with long holding periods. This is typical of late stage bull markets and can signal an oversupply of coins, or a view that prices are becoming expensive, and thus a relatively high risk environment.
↘️ Low Values are associated with periods of low value realization by STHs, and relatively low market volatility. This is typical of market consolidation phases, sideways market trends, and protracted bear markets. This tends to align with macro market lows as gradual accumulation takes place.