A crucial sign of miner activity indicates that Bitcoin may have reached a local low. What does the market’s top cryptocurrency actually consist of, and what comes next?
Careful observation of miners’ activity
The king of cryptocurrencies is still in a bear market, and many investors are seeking for a bottom. Bitcoin has lost more than 60% of its value since reaching its ATH in November 2017 at just under $69,000. It’s even worse for the vast majority of struggling market assets.
The recent decline in the entire market value of cryptocurrencies below $1 trillion shows the market’s fragility.
Numerous analysts have examined all feasible data and signs in an effort to pinpoint the fabled bottom. Indicators of minors are specifically seen in this search. Miners might be obliged to sell their output and scale back their operations if the market falls.
The “hash rate” is typically used to monitor minors’ behavior. This metric evaluates the processing power required to mine bitcoins. The 30-day average hash rate has been steadily declining since the most recent market meltdown in May. At certain points, it even reached 10%.
This indicator is closely examined since it has frequently allowed for the identification of market lows. We are typically on the verge of capitulation when it falls and the miners slow down their work. Matthew Kimmell, an analyst at CoinShares, explains:
- Historically, miner capitulation has often corresponded to the bottom of the crypto market.
Hash ribbons to the rescue?
Starting from the hash rate, Charles Edwards, the founder of a crypto fund named Capriole Investissements, created the hash ribbons in 2019. These ribbons should make it easy to determine the different opportunities to buy the asset.
So when the hash rate’s 30-day moving average falls below the 60-day moving average, it’s a bearish crossover . We observe here, a decrease in the activity of the miners which indicates a downward movement.
Conversely, when the 30-day moving average of the hash rate surpasses that of 60 days, we are on a bullish crossover. Here it is believed that the worst of the movement is behind us and that the miners’ capitulation has taken place. In addition, if this happens when the 10-day moving average of the price of BTC crosses above that of 20 days, we are on a buy signal.
Such a situation was observed this Saturday. If we rely on past performance, although this cannot predict future performance, we note that a purchase of BTC at these strategic locations has generated significant returns .
For example, an investor who followed this buy signal in August 2016 and sold back at the peak of 2018 would have achieved a performance of 3000% . An incredible performance even if it is difficult to envisage the bottom and the peak of a market !
Edwards says about hash ribbons:
- I created hash ribbons in 2019 as a way to spot major BTC mining sellouts. Indeed, once the recovery sets in after these events, they usually mark the bottom for the price of bitcoin. Historically, these times are therefore excellent times to invest in bitcoin, with impressive returns.
This metric can therefore be a useful ally in terms of investment in addition to numerous indicators. However, this signal by itself is insufficient.
