Definition. The Bitcoin 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 are spending each day to the total realized market capitalization. The ratio is shown in orange, with reference levels for low (red) and high (blue) value realization, plotted over price (grey).

Technical. The methodology quantifies the aggregate sell-side risk in the market. It assumes that all profit and loss realized on-chain is 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:

• Sell-Side Risk Ratio = sma((Realized Profit + Realized Loss) / Realized Cap, 15)
• Reference levels: Low Value Realization at 0.1% and High Value Realization at 0.75%.

Interpretation. This metric provides a comprehensive story about market cycles:

• High values are associated with periods of high value realization, and relatively high market volatility. This is typical of late-stage bull markets, and bear market capitulation events. This can signal an oversupply of coins, or a loss in investor conviction, and thus a relatively high risk environment.

• Low values are associated with periods of low value realization, and relatively low market volatility. This is typical of market consolidation phases, and sideways market trends. This can signal macro market bottoms, accumulation phases and relatively low sell-side risk environments.

It can also be expected that upper and lower bound extremes will compress over time as the Bitcoin market matures, and as volatility decreases.

Notes. Coined by Mikołaj Zakrzowski (2022) — Introducing Bitcoin Sell-Side Risk. Built from Realized Profit, Realized Loss and Realized Cap. See also the Long-Term Holder Sell-side Risk Ratio cohort variant, and the Realized Value RVT which this work inspired.