Has the bottom been found in the price of BTC yet? Here's what the Hash Ribbons

BTC price tends to be cyclical, and almost all market participants are trying to determinethe moment of finding the bottom. How useful is the Hash Ribbons indicator?

The question of whether the price of BTC has already reached a long-term low is of concern to many investors who are faced with a choice: buy the decline now or wait for the downtrend to continue?

Financial forecasts are rarely accurate and the marketbitcoin is no exception in this sense. But because the bitcoin market on its way to global network adoption typically follows four-year cycles of smaller bull and bear trends, many still struggle to time market highs and lows when choosing when to allocate capital.

Investors, traders and analysts are tryinguse various methods to determine price lows, including technical analysis indicators, market sentiment, Bitcoin hashrate, and even Google trends. In this post, we'll take a look at a Bitcoin-specific price indicator based on the overall hashrate of its network: Hash Ribbons.

It may be of particular interest becausehas already proved its reliability in the past in identifying favorable BTC opportunistic entry points before the market is overwhelmed by a wave of FOMO. Although how accurately it predicts the price of BTC is a separate question.

Miners surrender as a bottom indicator

Charles Edwards, founder of the"quantitative asset management" Capriole Investments, believes that the price of BTC and the hash rate of the Bitcoin network correlate with each other in a reflexive causal relationship.

“The hash rate drop followed by a recovery marked most, if not all, of bitcoin’s price lows,” Charles Edwards noted.

The logic is supposed to be simple:when some miners start to be squeezed out of the market, which is reflected in a significant drop in hashrate, this creates additional pressure on the market by reducing the profitability of mining. In addition, strong market pressure is already required to induce such capitulation, since miners are considered to be very stable players in the ecosystem.

“Given the supply volumes controlled byminers, and the overall high efficiency of their business, often a forced increase in sales on their part accompanies the worst phase of the market decline, explains Edwards. “As a result, the recovery of price and hashrate after such capitulation of miners has historically marked the finding of long-term price lows.”

Edwards defines miner capitulation asa measured decrease in the total Bitcoin hashrate ranging from 10% to 40%. To visually track such events, the analyst has developed the Hash Ribbons indicator.

Can Hash Ribbons Predict Long Term Bitcoin Price Lows?

Hash Ribbons available on Tradingview areindicator consisting of two simple moving averages (MA) of Bitcoin hashrate: 30-day. and 60 days. MA. When the MA with a shorter period crosses down the long-term, it signals the beginning of the capitulation period, the crossing up, on the contrary, indicates the end of this period.

Edwards claims that buying BTC is at an endThe miner capitulation period presents an asymmetric opportunity for investors, as it is believed that by this point the worst is over and the market is starting to recover.

“I believe this is the best publicly available long-term buy signal to date, although the reader should of course do their own assessment,” he says.

Hash Ribbons signaled three times in 2020purchase: April 24 ($7500), July 12 ($9300) and December 2 ($19.2 thousand). After a year, these purchases would have yielded returns of about 567.76%, 255.73%, and 194.11%, respectively.

However, last year, with the Hash Ribbons signal,not everything was so smooth. Based on this indicator, an investor would have bought BTC on August 7th at around $44.6K - only to see that investment lose half its value by today.

However, this decrease occurred afterBitcoin set a new all-time high of $69K in November, putting investors up 54.66% in just three months. However, pinpointing the peak is difficult, if not impossible.

Edwards explains that the Hash Ribbons strategy only signals attractive buying points, and it is up to the investor to decide when to sell BTC and close the position.

In the 2018-2019 bear marketa buy signal in Hash Ribbons occurred on January 10, 2019. That day's closing price for BTC was $3,627.51, just 16% above that cycle's low of $3,122.28 on December 15, 2018.

This year, the capitulation of miners helped define another opportunistic price cut.

“We have recently seen signs of a major capitulationminers in June, accompanied by a price decline from $30K to less than $20K following the Hash Ribbons signal, followed by a 30% reduction in the total BTC balance of public miners,” says Edwards.

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Indeed, Hash Ribbons marked the beginningminers' capitulation on June 9, indicating likely increased pressure on the market. Over the next nine days, the price of BTC fell below its 2017 peak, approaching $17.5 thousand on June 18.

Monthly reports published later showed that many public bitcoin miners had sold thousands of bitcoins as early as June, and this trend of decreasing balances continued in July.

Does the significance of miner capitulation decrease from year to year?

Fred Thiel, CEO of a Nasdaq-listed mining companyof Marathon Digital, says miner capitulation strategies are based on an old and tried-and-tested rule of thumb in the markets: the assumption that those deeply immersed in the workings of the industry have more and better information than the bulk of other participants. market.

“Usually in economic or financial markets, the actions of the person with the best access to information can be the most reliable signal in the market,” says Fred Thiel.

The miner owns certain information like,for example, about their own operating costs, the cost of mining one BTC and its market price. Based on this information, the miner decides on further actions, including the possible liquidation of his position and holdings in BTC, or even the termination of the activity if it ceases to be profitable.

“So if a miner starts selling hisaccumulation of BTC, so he is at the point where this is the best alternative for him, so we can assume that this indicates a market bottom, ”says Thiel,

but emphasizes that the degree of influence of surrenderminers to the market will decrease over time. Why? If a few years ago miners were the largest institutional holders of bitcoins, now their position sizes are inferior to those of companies like MicroStrategy, Tesla or Block.

“So, if before the reaction of the miners wasa really good indicator of a bottom, today I think it can serve as a good indicator of when the market has reached a really high level of pain, explains Thiel. “And if miners are selling bitcoin, it means that either they have no choice – that is, it is a forced sale, akin to receiving a margin call – or because they are desperate, if you like.”

Edwards acknowledges this aspect, but still considers it reasonable to use the miner capitulation signal to determine attractive price levels for buying BTC.

“I believe the predictive power of Hash Ribbonsmay decrease gradually and step by step, with the frequency of four-year halving cycles of Bitcoin, says the analyst. “In the last 18 months, we have witnessed the arrival of large companies and banks in Bitcoin.”

"The current configuration of Hash Ribbons is probablywill become noticeably less useful in the next cycle and, perhaps, completely unusable in the next one,” Edwards added. “Nevertheless, in the current cycle they showed themselves just fine, and there are still two years left before its end. Capriole Investments closely monitors Hash Ribbons, using this indicator as a significant factor in its investment strategy."

Has the price of BTC found a bottom?

Hash Ribbons have been signaling for two monthscapitulation of the miners, however, the signal to buy bitcoin has not yet followed, which leaves the question in force: has the price bottom already passed or can we expect further drawdown?

Edwards points out thatAs a rule, miner surrender periods last from one week to two months, and this suggests that with a high probability the long-term bottom was already found on June 18, since the price has not gone lower in the past two months.

“We at Capriole Investments use severalstrategies at the same time, paying attention to combinations of signals in different approaches, says Edwards. “Some of these strategies show that the bottom has already been passed, others suggest that it is forming, and still others say that the market is still in decline and the bottom is still confirmed.”

Given the difficulty of accurately determininglong-term market lows, Hash Ribbons can at least help investors identify miner capitulation periods in which dollar cost averaging can become a very effective long-term strategy. Or, alternatively, less risk-averse investors can wait for a buy indicator signal indicating a likely market recovery.

Whatever the case, Edwards sees the current drawdown as the best time to buy bitcoin.

“Overall I think the next 5 to 11months will provide the best opportunity to get into Bitcoin over the next five-plus years,” says Edwards. “This conclusion is based on the quantitative modeling we used, the current decline and timing within the current four-year halving cycle. That is, Bitcoin tends to find a bottom during this period (6-12 months) of the halving cycle, which is where we currently find ourselves. Not a «financial recommendation», of course.”

BitNews disclaim responsibility for anyinvestment recommendations that may be contained in this article. All the opinions expressed express exclusively the personal opinions of the author and the respondents. Any actions related to investments and trading on crypto markets involve the risk of losing the invested funds. Based on the data provided, you make investment decisions in a balanced, responsible manner and at your own risk.