An analyst explained that Bitcoin has historically experienced a recovery after bearish phases like the one the cryptocurrency is going through.
Bitcoin Hash Ribbons Show Miner Capitulation Is Underway
In a new job On X, analyst Willy Woo discussed the relevance of the Bitcoin hashrate for the asset’s price recovery. THE “hash rate» refers to a measure of the total computing power that miners currently have connected to the network.
The trend of this metric can be considered a representation of the situation among these chain validators. When the indicator increases, it suggests that miners find the chain interesting to mine at the moment.
On the other hand, a decline in the metric implies that some miners have decided to disconnect from the network, potentially because they currently do not find it profitable to mine BTC.
One way to determine whether any of these behaviors constitutes a lasting trend may be to use the “hash ribbons.” This indicator compares a short-term moving average (MA) of the hashrate to a long-term average.
When the first falls below the second, the miners capitulate en masse. Likewise, a reverse-type crossover suggests that capitulation within this cohort is complete.
Now, what is the relationship between hash strips and the price of the asset? As Woo notes, Bitcoin shows recovery when “weak miners die and the hash rate recovers.” This corresponds to the phase of the market where capitulation is complete.
Below is the hash ribbon chart shared by the analyst that shows what the situation for miners currently looks like.
The data for the BTC hash ribbons over the past several years | Source: @woonomic on X
As the chart shows, Bitcoin hash ribbons signal that miners are capitulating. The reason for this poor situation of minors lies in the Reduce by half event which took place last April.
Halvings are periodic events that occur every four years and reduce overall network rewards by half. Here, block rewards naturally refer to the rewards that miners receive as compensation for solving blocks on the chain.
These rewards make up the majority of this cohort’s income, so cutting them in half can have a huge impact on their finances. As such, it is not surprising that the hashrate has been on a downward trend recently.
What is interesting about the latest capitulation is that the hash ribbons have been giving this signal for 61 days now. “This is for the record books because it takes a long time for miners to capitulate after the halving,” says Woo.
For comparison, here’s a close-up of the stressful mining period of 2016:
The miner capitulation event leading up to the 2017 bull run | Source: @woonomic on X
It took miners 24 days to see a recovery back then, which is significantly shorter than the duration of the capitulation event in the current cycle so far. The 2020 one was even shorter, with hash ribbons seeing the reverse crossover in 8 days.
The 2020 miner capitulation | Source: @woonomic on X
It now remains to be seen when the hash ribbons will cross again this time and whether the recovery of miners will also lead to a recovery in the price of Bitcoin.
BTC Price
At the time of writing, Bitcoin is trading at around $63,900, down more than 4% over the past week.
Looks like the price of the coin has been on the decline recently | Source: BTCUSD on TradingView
Featured image of Dall-E, woocharts.com, chart from TradingView.com
