On-chain data shows that bitcoin Hash Ribbons have recently undergone a crossover. Here's what it could mean for the cryptocurrency.
bitcoin Hash Tapes Suggest Miner Capitulation Is Underway
As CryptoQuant community manager Maartunn explains in a Quicktake mail, miners are capitulating right now if the Hash Ribbons indicator is to be believed. This on-chain metric is generally used to determine if miners are in danger.
btc runs on a proof-of-work (PoW) consensus mechanism where miners play the role of validators and compete against each other using computing power for the chance to add the next block to the chain.
This computing power, when measured across the network, can provide insight into the health of miners as a whole. For this reason, the Hash Ribbons indicator uses this total bitcoin “Hashrate” to judge the situation of the miners.
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Naturally, an increase in Hashrate suggests that the network is attracting miners at the moment, while a decrease could imply that low profitability is causing some of these validators to withdraw from btc.
The Hash Ribbons indicator uses two moving averages (MAs) of the Hashrate, 30 days and 60 days, to represent whether or not these behaviors are particularly intense at the moment. When the 30-day tape moves below the 60-day tape, it suggests that miners are capitulating en masse. On the other hand, the opposite crossover suggests that the network is seeing growth again.
Now, what relevance do these trends have for bitcoin? According bitcoin-bottom-fishing-with-miner-capitulation-ad693b8a6519″ target=”_blank” rel=”nofollow”>Carlos Edwards, the creator of Hash Ribbons, miners have historically been quite resilient and only quit when things get especially bad for the cryptocurrency. As such, the market is more likely to approach a bottom whenever these chain validators show capitulation.
Below is a chart showing what miner behavior has looked like recently based on this indicator:
As Maartunn has highlighted on the chart, bitcoin Hash Ribbons have experienced a crossover recently. More specifically, the crossover has involved the 30-day moving below the 60-day, implying that miners are capitulating.
Miners' profits come down to three factors: the btc spot price, transaction fees, and electricity costs in the area they are located. Historically, fees have been quite low compared to block rewards, so miners' finances have depended on the price (as block rewards only have this variable attached) and electricity prices.
Recently, btc price has been stuck in consolidation while block rewards have been halved in the latest Halving event. This has led to a reduction in the income of these chain validators, so it is not surprising to see that miners with the least efficient machines have already started leaving the network en masse.
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In the graph, past cases of mining capitulation are shown with green lines. It is visible that while miner capitulation has generally occurred near profitable buy points for the asset, these bottoms have not appeared immediately after crossovers have occurred. As the analyst notes, “This plays out in the following days and weeks after the less efficient miners throw in the towel.”
btc Price
bitcoin has continued to move generally flat over the past week as its price is still trading around $62,700.
Featured image by Vasilis Chatzopoulos on Unsplash.com, CryptoQuant.com, TradingView.com chart
