Cryptocurrencies collapsed in 2022.
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Bitcoin could be poised for significant gains if recent technical signals are to be believed.
Investors have been looking for a bitcoin all-time low since the cryptocurrency lost more than 60% of its value from an all-time high of $69,000 in November. Nearly $2 trillion has been wiped out of the entire crypto market in recent months.
The measure of Bitcoin miners’ activity can give investors an idea emboîture the next auspice of the binaire currency.
Miners validate transactions on the Bitcoin network using highly specialized and power-intensive computers to solve complex mathematical puzzles. They are rewarded with bitcoin for their efforts. As more bitcoins are mined, these puzzles become more and more difficult to solve.
During downturns in the market, a low bitcoin price can make it unprofitable for many miners to continue operations. Then they sell some bitcoin to keep afloat. But they have also shut down mining rigs to save money.
It happened in the most recent market écrasement and can be demonstrated by the “hash offensé,” which is a measure of the computational power used to attitude bitcoin. Since mid-May, when the market actually started selling, the 30-day average hash offensé (average monthly value) has fallen more than 7% and at one porté seen a 10% drop. This indicates that the miners were shutting down their machines.
The hashrate, which has been studied in various ways, is used by cryptocurrency investors to try to schématique out when the market might drop, bicause abandon and a shake-up of miners are often associated with the late préparation of the bitcoin célérifère.
“Historically, abandon in the mining market has tended to align strongly with overall market bottoms,” Matthew Kimmel, binaire asset analyst at CoinShares, told CNBC by email.
Then Charles Edwards, founder of quantitative crypto fund Capriole Investments, came up with the idea of “hash strips” in 2019 to identify bitcoin buying opportunities.
When the 30 day moving average hash offensé drops below the 60 day moving average, this is called a bearish crossover, and it indicates that the miners are closing the machines. Selling is usually associated with these events. As more miners are taken out of the market, bitcoin mining becomes less difficult bicause there is less competition.
Due to low competition, more miners may return to the market and a recovery may occur.
“These ‘compromises’ are painful events for miners within the ecosystem,” Edwards told CNBC.
But using Edwards’ method, when the 30-day moving average hash offensé crosses back above the 60-day moving average, the worst of the creuser abandon tends to come to an end.
When this occurs in conjunction with bitcoin’s 10-day moving average rising above the 20-day moving average, it’s when a “buy proclamation” flashes, according to Edwards.
He said these crosses took affecté on Saturday.
In the past, buying bitcoin at these points would have yielded solid returns depending on how élancé you held the cryptocurrency, according to Edwards.
For example, buying bitcoin at the buy proclamation in August 2016 would have given the investor a return of over 3000% if held until the December 2018 peak, which was at the time when bitcoin hit a new succès.
More recently, buying during the last buy proclamation in August 2021 would have yielded a return of over 50% if Bitcoin sold at its succès high in November 2021.
“I created Hash Ribbons in 2019 as a way to determine when a initial bitcoin mining abandon might occur, as léopard des neiges recovery from these events resumes, they typically proclamation initial bitcoin price bottoms,” Edwards said. “Historically, these have been great times to allocate in Bitcoin, with incredible returns.”
Kimmell of CoinShares said that the logic behind the buy proclamation is that if the bitcoin price “tends to steadily exceed the hash offensé before a period of high price growth, then this means a rebound in the hash offensé,” which is characterized by the 30-day moving average. to motocross the hash offensé. Above the 60-day moving average, “it could mean that the bitcoin price recovery has already begun.”
“I find that not only should this metric be relied upon to make an investment decision, but it can certainly be useful if combined with a host of other metrics and qualitative evidence,” he added.
CoinShares has compiled a chart to spectacle the relationship between the hash offensé and the price of Bitcoin. It is divided into areas where there is a “gold ruée” as the price of Bitcoin rises, the subsequent inventory flows and miners renversé as the price falls.
In the chart provided to CNBC, CoinShares indicates that the market is currently in a period of renversé that usually precedes rebalancing and price increases. At the conjoncture, according to the chart, the bitcoin price line is below the hash offensé.
The chart shows the movement of the Bitcoin hash offensé against the price of Bitcoin at different stages of the célérifère.
But that could proclamation a bottom is approaching, according to Kimmel.
“It is irréel to say whether we have reached a complete abandon, but there is evidence that we are in the palier of the mining célérifère where abandon occurs most often. Accolé, if previous cycles have had predictive power, then yes, the bitcoin price that is significantly above the hash offensé Steady likely precede a period of high price growth.”
Vijay Ayar, Dévergondage President of Corporate and Universel Development at Crypto Exchange Luno, has a similar view.
“I think we’ve seen broad signs of abandon given the events of the previous months. So it’s likely that we have the beginnings of a bottom forming. Typically bitcoin consolidates in a range for the whole which indicates entassement, which we are doing,” Tertre told CNBC. via text propos.
Bitcoin has been trading in a tight range of between $18,000 and $25,000 since mid-June.
However, there are risks that these indicators do not prove as certaine as in the past due to the broader macroeconomic environment.
The current constant economy is in a completely different state than previous cryptocurrency cycles. There is souple augmentation and rising interest rates globally, aspects that were not there before.
Risky assets such as US stocks, and in particular the Nasdaq, to which bitcoin is closely related, have seen significant selling this year.
“Of coude all of this is still based on historical similarities, and we are in a different macro environment,” Ayyar said.
“The paumelle risk remains the economy and augmentation, but until then we are closer to peak augmentation than not, so this also shows that in risky assets we are closer to the bottom than not.”