Critical Bitcoin Metric Gives A Historic Signal!

According to the latest technical signals regarding the mining hash rate, Bitcoin (BTC) is poised for big gains. According to one analyst, an indicator known as “hash ribbons” has recently given a ‘buy signal’.

Bitcoin mining and hash rate

Investors have been looking for a bottom for Bitcoin since it lost more than 60% of its value from its ATH level of around $69,000 reached in November. Meanwhile, the crypto market has wiped out nearly $2 trillion in recent months. It is possible that a measure of activity by Bitcoin miners could give investors a clue as to the next direction of BTC. Miners verify transactions on the Bitcoin network using highly specialized and power-intensive computers to solve complex mathematical puzzles. They are rewarded with Bitcoin for their efforts. These puzzles get harder to solve as more BTC is mined.

During market crashes, a low BTC price made it unprofitable for many miners to continue their operations. cryptocoin.comAs you follow, they then sold some BTC to stay afloat. But they also shut down their mining rigs to save money. This happened in the most recent market crash. A measure of computing power used for bitcoin mining is the hash rate. Since mid-May, when the market really started to sell out, the 30-day average hashrate has dropped by more than 7%. At one point it saw a 10% drop. This signaled that the miners had shut down their machines.

The hash rate, which has been studied in various ways, is used by crypto traders to try to understand when the market might bottom out. Because capitulation and miners jolt is often associated with the late stage of a BTC cycle. “Historically speaking, capitulation in the mining market tends to strongly overlap with overall market bottoms,” says Matthew Kimmell, CoinShares digital asset analyst.

Hash rate and buy signal

Following this, Charles Edwards, founder of quantitative crypto fund Capriole Investments, came up with the idea of ​​’hash ribbons’ in 2019 to identify buying opportunities for Bitcoin. When the 30-day moving average for the hash rate falls below the 60-day moving average, it is called a bearish trend. This indicates that the miners have turned off the machines. Often sales are associated with these events. As more miners withdraw from the market, the difficulty of mining Bitcoin decreases as there is less competition. Due to reduced competition, more miners may re-enter the market. Therefore, there is an opportunity for a recovery to occur.

“These ‘capitulations’ are painful events for miners in the ecosystem,” says Charles Edwards. But using Edwards’ method, the worst of miner capitulation tends to end when the 30-day moving average for the hash rate rises above the 60-day moving average. When this happens when Bitcoin’s 10-day moving average price rises above the 20-day moving average, a ‘buy signal’ flashes, according to Edwards.

Edwards says these crosses occurred on Saturday. According to Edwards, buying Bitcoin at these points in the past would yield strong returns depending on how long you held BTC. For example, buying Bitcoin on the buy signal of August 2016 and holding it until the peak of December 2018, when BTC hit a new record high, gives the investor more than 3,000% returns. More recently, buying during the last buy signal in August 2021 would have yielded more than 50% if Bitcoin had sold at a record high in November 2021.

Kimmell of CoinShares explains the reasoning behind the buy signal as follows. “If Bitcoin tends to steadily outpace the hash rate before a period of high price increases, then there will be a rebound in the hash rate marked by the 30-day moving average for the hash rate transition. Above the 60-day moving average, it means that the recovery in Bitcoin price has already begun. I don’t think you should rely on this metric solely to make an investment decision. But when combined with a range of other metric and qualitative evidence, it certainly can help.”

Is the bottom near for Bitcoin?

CoinShares created a chart to show the relationship between the hash rate and the Bitcoin price. A ‘gold rush’ occurs as the Bitcoin price rises. As the price fell, it split into areas where a subsequent stream of inventory and miners swayed. CoinShares suggests that the market is typically in a period of rebalancing right now. He also notes that it is in the period of swinging prices that precedes a rally. Currently, according to the chart, the Bitcoin price line is below the hash rate.

However, according to Kimmell, this is likely to indicate that the bottom is near. In this context, Kimmell says:

It is impossible to say whether we have reached complete surrender. But there is evidence that we are at the stage of the mining cycle where capitulation most often occurs. Secondly, if the previous loops carry predictive power, then yes. It’s possible that Bitcoin was ahead of a period of high price spikes that consistently exceeded the hash rate.

Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, agrees. Ayyar says the following on the subject:

Given the events of the previous months, I think we’re seeing broad signs of capitulation. Therefore, we are most likely at the beginning of the formation of a bottom. Usually Bitcoin consolidates in a range for a whole showing accumulation. This is something we can see.

Bitcoin has been trading in a tight range between $18,000 and $25,000 since mid-June. However, the broader macroeconomic environment is quite different from the past. Therefore, there are risks that these indicators may not be as positive as in the past. The current global economy is in a very different state compared to previous crypto cycles. There is widespread inflation and rising interest rates globally. These are aspects that weren’t there before. US stocks and Bitcoin in particular are closely related. Vijay Ayyar makes the following statement:

Of course, all this is still based on historical similarities. We are in a different macro environment. The biggest risk remains the economy and inflation. But even then we are closer to the peak of inflation. This shows that we are close to the bottom in risk assets.

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