The Bitcoin sell-side risk ratio has hit a 3-year high as the cryptocurrency broke above $73,000, signaling potential increased market volatility.
This metric is calculated by dividing the sum of all profits and losses realized on-chain by the realized capitalization, offering insights into daily investor activity compared to the total market capitalization adjusted for real-time inflows and outflows.
Between Feb. 8 and March 13, the sell-side risk ratio for Bitcoin surged from 0.12% to 0.777%, following a significant price increase from $45,330 to $73,104. This marked the highest sell-side risk ratio since March 9, 2021, and the first time it surpassed the 0.75% threshold.
After reaching this peak, Bitcoin’s price dropped to $61,860 by Mar. 19 before bouncing back to $70,000 on Mar. 26, causing the sell-side risk ratio to adjust to 0.556%.
The increase in the sell-side risk ratio suggests high value realization among investors, which can occur at the late stages of bull markets or bear market capitulation events. However, spikes like these can also happen at the start of bull cycles, especially after market corrections.
Despite the volatility indicated by Bitcoin’s price correction and sell-side risk ratio, historical trends show decreasing returns with each market cycle, pointing to a maturing market where investors realize less profit with each cycle.
The sell-side risk ratio staying above the 0.1% mark since Nov. 29, 2023, signifies a shift from low value realization observed in Sept. 18, 2023, hinting at a move away from market bottoms towards more active and speculative trading phases.
The breaking above the upper bound indicates a significant turning point likely driven by investor optimism and profit-taking. However, the trend towards lower highs in this ratio suggests a gradual market stabilization with less pronounced peaks in value realization as the market matures.
