The question of whether the bottom of Bitcoin prices is behind us lies in the minds of many investors ready for the challenge: buy a dip or wait for a bigger one?
Financial forecasts are rarely accurate, and the reality is reflected in the Bitcoin market.But since BTC trading Usually follows a four-year cycle of bullish and bearish marketsAs peer-to-peer currencies navigate their recruitment cycle, many try to time the top and bottom of Bitcoin when making allocation decisions.
With that in mind, investors, traders and analysts can use a variety of techniques to find the bottom of the price, including technical analysis (TA), emotions, hash rates, and even Google search popularity. It was made. And in this article, we’ll discuss more innovative price indicators that rely on Bitcoin’s hash rate and a network of miners known as hash ribbons.
This indicator has proven reliable in the past to find opportunistic entry points for bitcoins in terms of risk / reward, allowing investors to enter the market and buy at low prices. And it’s worth it because you’re not afraid that FOMO (FOMO) will start. This is another matter of whether to accurately predict the price of Bitcoin.
Miner surrender as a lower indicator
Charles Edwards, founder of quantitative asset management firm Capriole Investments, told Bitcoin Magazine that, in his view, Bitcoin prices and hash rates correlate in a reflexive cause-effect relationship.
“The drop in hash rate and subsequent recovery marked the bottom of most, if not all, major Bitcoins,” he said.
The thinking process is simple. As some miners begin to be kicked out of the market, as shown by the significant drop in Bitcoin’s hash rate, the miners’ profit margins are squeezed, creating additional market pressure. Also, because miners are considered highly resilient players in the ecosystem, strong market pressure was needed to cause their surrender in the first place.
“It often happened, given the size of the supply controlled by the miners and the level of general high efficiency in their business when the miners were making the worst sales,” Edwards explained. “As a result, the price and hash rate recovery from this miner’s surrender has historically marked the bottom of major prices.”
Edwards defines the surrender of the minor as a measured decline in Bitcoin’s total hash rate, on the order of a 10% to 40% decline. To better identify such events, quant analysts have developed an indicator, the hash ribbon.
Can Hash Ribbons predict Bitcoin price bottoms?
The hash ribbon published on TradingView is an indicator consisting of two simple moving averages (SMAs) of the hash rate of Bitcoin. 30th and 60th SMA. The lower cross of the short-term MA in the long-term MA marks the beginning of the surrender period, while the upper cross marks the end.
Edwards argues that buying Bitcoin at the end of the miner’s surrender period will bring huge profits to investors, as the worst is over and the market is believed to be starting to recover.
“So far, I believe this is the best long-term purchase signal publicly available, but readers need to make that assessment,” he said.
In 2020, the Hash Ribbon Indicator flashed three purchase signals on April 24th ($ 7,505.53), July 12th ($ 9,306.17) and December 2nd ($ 19,226.55). A year later, these purchases generated approximately 567.76%, 255.73%, and 194.11% revenue, respectively.
The hash ribbon indicator showed three buying opportunities in Bitcoin in 2020, all of which generated huge profits in just one year. Image source: TradingView.
But last year the indicators didn’t work very well. Investors following Hash Ribbon for Bitcoin allocation bought BTC for about $ 44,612.94 on August 7, but the investment is currently trading as P2P currencies are trading for less than $ 20,000. Has lost more than half of its value.
But that was after Bitcoin hit a record high of $ 69,000 in November, at which point investors would be 54.66% green in just three months. Still, finding the top exactly is very difficult, if not impossible.
Purchased when the hash ribbon last showed a chance, it had a negative result of 55.53% so far, after surpassing 54% at a record high of $ 69,000. Image source: TradingView.
Edwards told Bitcoin Magazine that the hash ribbon strategy is only concerned with flagging attractive entry points, and deciding when to sell and close a position is a burden that investors must bear. Did.
In the bear market from 2018 to 2019, the hash ribbon indicator flashed the buy signal on January 10, 2019. Bitcoin closed at $ 3,627.51 that day. This is only 16% higher than the cycle low of $ 3,122.28 seen on December 15, 2018.
This year, the surrender of miners helped to spot price declines.
“Recently, strong evidence of the surrender of a major miner in June has been seen: a $ 30,000 to $ 20,000 price cut following the hash ribbon surrender signal, followed by a 30% draw by the miner’s Ministry of Finance. Down, proved by $ 4 billion miner loan stress news in June 2022. Edwards told Bitcoin Magazine.
Image source: TradingView.
Indeed, the hash ribbon marks the start of the miner surrender on June 9th, indicating that further stress could be brought to the market. In the next nine days, Bitcoin fell below its 2017 highs and approached $ 17,500 on June 18.
As discovered in the July public filing and production update release, Many public Bitcoin miners sold thousands of Bitcoins in June..To date, only Marathon Digital and HUT8 Store BTC mined every month..
Is the relevance of miner surrender decreasing every year?
Fred Thiel, CEO of Bitcoin Minor Marathon Digital listed on Nasdaq, told Bitcoin Magazine that the strategy based on the miner’s yield period presupposes a rule of thumb in the open market. outside.
“Usually in economic and financial markets, when the person with the best information acts, it’s an indicator of the most reliable place in the market,” he said.
Thiel continued to explain that miners know specific information such as operating costs, the cost of mining one Bitcoin, and the price of Bitcoin. Next, we will use that information to decide on a course of action, such as liquidating positions and Bitcoin holdings, or suspending operations if profitability becomes too low.
“Therefore, when miners start selling Bitcoin holdings, they are at a point where it is their best option, so you will think it is bottoming out,” Thiel said. rice field.
However, the CEO emphasized that the extent to which the surrender of miners will affect the market will diminish over time. why?Miners were the largest institutional bitcoin holders a few years ago, but now their position size is larger than that of companies such as: MicroStrategy, Tesla, Block..
“So, in the past, miners were a really good indicator of the bottom, but today I think they are a good indicator of when the market reached a really high point of pain,” Thiel explained. “And miners sell Bitcoin because they don’t have an alternative, so they’re forced sellers like those who get margin calls, or they’re desperate if you want. Because they sell it because they are there. “
Edwards acknowledges this, but does not deny the validity of seeing the surrender of miners to find attractive Bitcoin prices.
“I think the power of the hash ribbon will diminish over time, with a gradual change every four years in half the cycle of Bitcoin,” an analyst told Bitcoin Magazine. “For the past 18 months, we have seen the entry of financial institutions and banks into Bitcoin.”
“The current configuration of the hash ribbon will probably be significantly useless in the next cycle and will not be available in the next cycle,” Edwards added. “Nevertheless, the hash ribbon has been a great cycle so far, and the current cycle is still two years left. Capriole Investments actively monitors the hash ribbon and uses it as an input to its investment strategy. I’m using.”
Is Bitcoin bottom-in?
The hash ribbon indicates that the miner’s surrender event is in progress for over a month, but no Bitcoin purchase signal has yet been reported.
Edwards tells Bitcoin Magazine that the miner’s surrender period usually lasts somewhere between a week and two months, with the bottom already happening on June 18th or possibly in the near future. Said.
“We are implementing some strategies inside Capriole to get the signal and approach confluence,” says Edwards. “Currently, some strategies suggest that they have hit the bottom, some strategies suggest that the bottom has been formed, and some strategies are still shrinking and the bottom has not yet been confirmed. “
Given that it is difficult to find the bottom of Bitcoin prices, investors can at least leverage the hash ribbon to find the miner’s capitalization period. During this period, the dollar cost averaging method may turn into an effective strategy over the long term. Alternatively, risk-averse investors who believe in the reasons behind the hash ribbon can find the beginning of a recovery and wait for the indicator buy signal.
In any case, Edwards believes it’s the best time to allocate to Bitcoin.
“In my general view, the next 6-12 months will provide the best opportunity to enter Bitcoin over the next 5 years or more,” Edwards predicted. “This is based on the data we are quantitatively modeling, the downdraw of the current cycle, and the timing within the current 4-year cycle. That is, Bitcoin is usually the current exact 6- It bottoms out in a 12-month half-cycle time frame. Of course, it’s not financial advice! “
