One of the most famous and effective Bitcoin indicators, namely the hash ribbons indicator, recently gave a blue signal. The indicator has an almost 100% hit rate, an average return of 4157% and an average downside risk of -11%.
This article explains the basics of the Bitcoin Hash Ribbons indicator, what it means, and historical examples of its efficiency. We also show that the blue buy signal generated could mean that the $ 30,000 mark was a macro low in the Bitcoin price. If this is the case then the price will never fall below this value again.
What is the hash rate?
The Hash Ribbons indicator is based on the hash rate. It is one of the most important metrics for the health of the Bitcoin network. Put simply, hash rate is the amount of computing power Bitcoin miners are generating at any given point in time. As a rule, an increase in the hash rate and a greater effort by the miners in Bitcoin mining are positively correlated with a price increase. A decrease in mining costs also leads to an increase in the hash rate.
If, on the other hand, this key figure falls, a decline or stabilization of the BTC price can also be observed. The activity of the miners decreases because the mining of coins becomes less profitable in a certain period of time. The following graphic from the last five years shows three constellations (in red) in which a significant decrease in the hash rate was correlated with strong corrections in the Bitcoin price.
What are hash ribbons?
Hash ribbons give long term signals that are used to indicate macro lows on the Bitcoin price chart. Analysis of its historical effectiveness suggests that the hash ribbons are an important indicator for identifying a buying opportunity. The inventor Charles Edwards describes in an article from October 2019 how the process works. He calls it possibly the strongest Bitcoin buy signal ever.
The hash ribbons are based on the ratio between two simple moving averages (SMAs) of the hash rate:
In addition to these moving averages of the hash rate, the method takes into account the 10-day and 20-day SMAs of the Bitcoin price. According to Edwards, this will help increase the accuracy of the indicator. In addition, almost without exception, the price fell by a maximum of 15% after the signal appeared.
The buy signal of the Hash Ribbons indicator is generated in three phases:
- Miner Capitulation: The 30-day SMA falls below the 60-day SMA, the chart turns red.
- End of capitulation: The 30-day SMA rises above the 60-day SMA, the green point lights up, the graphic turns green.
- Recovery of BTC price dynamics: The 10-day SMA of the Bitcoin price rises above the 20-day SMA, the buy point turns blue.
On the long-term chart of the Hash Ribbons indicator, we can see that the blue buy signal has already flashed a dozen times in the history of BTC. This always happened after the end of the miner’s capitulation (red).
The meaning of the blue buy signal
In order to understand the meaning of the Hash Ribbons indicator, it is important to compare the times at which the buy signal appeared with the long-term price development of Bitcoin. The blue point signals that the higher low point previously printed on the daily chart of the BTC price is a macro low in the market. This means that the daily low before the buy signal is a price to which BTC has not returned.
The analysis of historical signals confirms this interpretation almost perfectly. All but one of the historical blue signals from hash ribbons have recognized the macro lows of the Bitcoin price. The blue vertical line marks the price action point of Bitcoin, at which the point on the hash ribbons turned blue. Higher lows in the diagram are indicated by red circles. The logarithmic chart is used to better illustrate the relative differences in BTC price.
In eight out of nine cases in the history of the Hash Ribbons indicator over the past six years, Bitcoin price never fell below the lows it had before the blue dot flashed. The only exception occurred after the signal on December 27, 2019 (orange dot). Immediately after this signal, the Bitcoin price actually rose by 64%. However, the crash of the crypto market due to the COVID-19 pandemic caused the price to drop below the value previously set by Hash Ribbons for the first time.
Average wins are 4157%
Now if we look at the increases in the Bitcoin price after the blue dot has been generated, the gains are impressive every time. Without a doubt, the blue dot turned out to be an excellent opportunity to buy the dip.
The table below summarizes the data for all 13 hash ribbon signals that have been displayed repeatedly since December 2011. It contains data both on the maximum decrease after the appearance of the blue point (including the -45% due to the COVID-19 crisis) and on the maximum increase, measured at the absolute high. With this extraordinary data, there is an average profit for the purchase with the Hash Ribbons Signal of 4157% and a possible maximum loss of only -11%.
Historical buys for Hash Ribbons / Source: honestcrypto.io
Was the $ 30,000 mark a macro low?
Despite a false blue signal from hash ribbons, many cryptocurrency market analysts put a lot of weight on this indicator. For example, the dealer and YouTuber claims Eric Crownthat the coincidence of three specific factors is a strong indicator of a macro bottom in the BTC market. These are the low volatility of the Bitcoin price, the beginning of an uptrend on the daily BTC chart and the extremely blue buy signal of the hash ribbons.
In a recent article, we already showed that the volatility of the Bitcoin market hit an annual low at the end of July.
At this point the BBWP indicator generated a blue minimum volatility signal. Combined with the start of an uptrend – a higher high and a higher low – on the Bitcoin price chart and the blue dot on hash ribbons, the conditions mentioned by Crown are in line right now. Does that mean Bitcoin will now be heading straight for $ 100,000? Probably not. Could the bottom around the $ 30,000 mark that served as support from May through July be the price BTC will never drop below? The historical data suggest that this could be the case.
Translated by Maximilian M.
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