What Does the Hash Ribbons Indicator Mean?

Hash Ribbons is a way to figure out when the price of bitcoin is at its lowest point around the world. The metric measures how people feel about the market and how likely it is that miners will quit if the price of the first cryptocurrency goes down or if mining costs go up. Hash Ribbons is based on the idea that miners are the industry’s most resilient and sensitive to market recovery.

Who Created the Hash Ribbons Indicator?

Charles Edwards, the founder of Capriole Investments, came up with the idea for Hash Ribbons in 2019. Before he made the metric, he worked on a way to use network hashrate data to find the bottom of the price of bitcoin (Hash Rate Capitulation).

Edwards used the ideas of analyst Willy Wu, who used the Difficulty Ribbon to come up with the Difficulty Ribbon Compression indicator. He put both ways of thinking into one idea.

Why the Hash Ribbons indicator works

Edwards said that the hash rate is tied to both how much bitcoin costs and how much it costs to mine. Less miners stay in the network when the price is low and the costs are high. And the opposite is also true: when the price is high and the costs are low, people are more interested in the process.

Since Hash Ribbon is based on the average Bitcoin hashrate, it can be used to look at long-term trends and find good times to enter the market.

Because the metric takes time to form, it can’t be used to find the best times to sell bitcoin.

Hash Ribbons: How to Use Them?

The Hash Ribbon chart is based on two 30-day and 60-day simple moving averages (SMA) of the daily bitcoin hashrate. When the 30-SMA crosses over the 60-SMA from top to bottom, it means that the miners are giving up. A sign to buy is a crossover to the upside.

Edwards says that the Hash Ribbon indicator showed a “bad” entry point in 2015, when the price of bitcoin dropped by 42%. In 2019, 2021, and 2022, the same thing happened.

Edwards says that these “failed trades” can be avoided by adding 50-SMA and 200-SMA simple moving averages to the price of bitcoin. Using two tools at the same time will help cut down on risks.

Risks using the indicator

Hash Ribbon is popular and has been a good investment in the past, but that doesn’t mean that signals will work out in the future. Let’s talk about a few risks that come with using the indicator.

Hashrate

Hashrate is the only thing that can be used to measure the metric. In contrast to the difficulty of mining, the value of network computing power is an approximation that changes a lot. Inaccurate data can lead to incorrect conclusions.

Market volatility

Edwards’s data show that since a “buy” signal was given, the price of bitcoin can go down by between 3% and 42%. There is a chance that this value will be higher in the future, so you should think about the risk of volatility.

Regulation

China’s ban on mining showed that the hash rate of the Bitcoin network reflects how the industry is regulated. Industry participants in a given country may be limited in what they can do by local or global government rules. This will slow down the network’s hash rate, which will mess up the logic in the Hash Ribbon.

Threats from technology

Risks for figuring out how hashrate is spread around the world include the start of sales of more efficient mining equipment, an improvement in the performance of the old equipment, and the appearance of new cheap energy sources.

Old technologies can be pushed out of the way by new ones, and the overall processing power of the network doesn’t have to go down. People who aren’t good at what they do will leave the market, and the cost of mining bitcoins will go down. So, it is possible for the miners to give up, but the Hash Ribbon indicator won’t notice.

What Do Miners Give Up?

In the context of the Hash Ribbons indicator, miners give up when the cost of maintaining their equipment and paying for electricity is higher than the price of the cryptocurrency they mined for 1-2 months.

Based on the hashrate of bitcoin, Hash Ribbons show that miners may have given up. In other words, the indicator shows that a large part of the equipment has been cut off from the network.

Status of the Most Profitable Bitcoin Indicator

Hash Ribbons are essentially a pair of moving averages of the BTC network hashrate and mining difficulty that can show when miners give up or can’t run a profitable business.

Theoretically, when miners leave the market, the pressure to sell goes down, and only the strongest companies stay in business until the next peak. Considering where Bitcoin is in the new cycle and where it is trading in relation to its all-time high, another capitulation may just be profit taking, which will cause consolidation at current levels.

When a buy signal shows up, which means that surrender is over, magic happens. The chart above shows how the price of hash tapes has changed since the bear market bottom in 2018.

Before the 289 percent rally, the 46 percent rally, the 38 percent rally, and the current 116 percent rally, this indicator gave a correct buy signal. But these things happen when the market goes down. Getting a buy signal from Hash Ribbons before a bull market is like getting the will of a millionaire relative you don’t know much about. Because of this, hash tapes are the most profitable indicator in the history of Bitcoin.