Bitcoin Hash Ribbon Forms Yield Signal: What It Means

On-chain data shows that the Bitcoin hash ribbon recently experienced a crossover. Here’s what this means for cryptocurrencies.

Bitcoin hash ribbon signals miner capitulation

As explained by CryptoQuant Community Manager Maartunn in a quicktake post, if you believe the hash ribbon indicator, miners are surrendering now. This on-chain metric is typically used to determine if a miner is in distress.

BTC runs on a proof-of-work (PoW) consensus mechanism, where miners act as validators and compete with each other using their computing power for the opportunity to add the next block to the chain. will be done.

Measuring this computing power across the network provides insight into the health of miners as a whole. For this reason, the hash ribbon indicator uses this total Bitcoin “hash rate” to determine the status of miners.

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Naturally, an increase in hashrate suggests that the network is currently attracting miners, while a decrease in hashrate suggests that it is less profitable and some validators are withdrawing from BTC. It may suggest that there is.

The hash ribbon indicator uses two moving averages (MAs) of hashrate, a 30-day and a 60-day, to represent whether these actions are particularly intense at the moment. When the 30-day ribbon moves below the 60-day ribbon, it suggests that miners are capitulating in large numbers. On the other hand, the opposite cross indicates that the network is growing again.

So, what do these trends have to do with Bitcoin? According to charles edwards, the creators of hash ribbons, miners have historically been very resilient, only quitting when things get especially bad for cryptocurrencies. Therefore, whenever these chain validators signal capitulation, the market is likely to move closer to the bottom.

Below is a graph showing how miners’ recent behavior has been according to this metric.

It seems like two ribbons have crossed recently | Source: cryptoquant

As Maartunn highlighted in his graph, we have recently seen a crossover in the Bitcoin hash ribbon. More specifically, the cross includes 30 days of movement within 60 days, implying that the miners are surrendering.

A miner’s profit is determined by three factors: the BTC spot price, transaction fees, and electricity prices in the area where the miner is located. Historically, fees have been very low compared to block rewards, so miners’ finances are tied to price (as block rewards are the only variable attached to them) and power prices.

Recently, BTC price has been stuck in a consolidation, with the latest halving event cutting block rewards in half. This is putting a strain on profits for these chain validators, so it’s no surprise that miners using the least efficient machines have already started decommissioning the network in droves.

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In the graph, past instances of miner surrender are indicated by green lines. While miner capitulations generally do occur near profitable purchase points for an asset, we see that these bottoms do not appear immediately after a crossover occurs. As analysts point out, “things get worse in the days and weeks after inefficient miners give up.”