Market liquidity continues to show signs of strain as the Realized Profit/Loss Ratio (90D SMA) trends lower, currently around 1.32 and edging closer to the pivotal 1 level. This gradual decline highlights a weakening balance between profit realization and loss absorption. When this metric has sustainably fallen below 1 in past cycles, it has typically aligned with periods of broad capitulation, where realized losses dominate market activity. These phases often reflect elevated stress, reduced risk appetite, and widespread defensive positioning.

Should the ratio continue to compress toward or beneath this threshold, it would suggest that selling pressure remains unresolved. Historically, such conditions have tended to precede either heightened volatility or the early stages of a market stabilization process, depending on the surrounding liquidity and macro backdrop.