On-chain data shows that the Bitcoin hash band recently experienced a crossover. What this could mean for cryptocurrencies.
Bitcoin hash ribbon suggests miner capitulation has begun
As CryptoQuant community manager Maartunn explained in a Quicktake post, if the hash ribbon indicator is to be believed, miners are now capitulating. This on-chain metric is often used to determine if a miner is in distress.
BTC operates on a Proof-of-Work (PoW) consensus mechanism, where miners play the role of validators and use computing power to compete with each other for the chance to add the next block to the chain.
When measured over the network, this computing power can provide insights into the overall health of miners. Therefore, the Hash Ribbon indicator uses Bitcoin’s total “hash power” to determine how well miners are doing.
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Of course, an increase in hash rate indicates that the network is currently attracting miners, while a decrease in hash rate may mean lower profitability, causing some validators to exit BTC.
The Hashrate Ribbon indicator uses two moving averages (MAs) of hashrate, the 30-day and the 60-day, to indicate whether these actions are particularly strong at the moment. When the 30-day color band moves below the 60-day color band, it indicates that miners are capitulating en masse. On the other hand, the opposite cross indicates that the network is again observing growth.
Now, how relevant are these trends to Bitcoin? Charles Edwards, the creator of Hash Ribbon, said miners have historically been quite resilient and only quit when things get particularly bad for cryptocurrencies. Therefore, whenever these chain validators show capitulation, the market may be more likely to approach a bottom.
The chart below shows recent miner behavior according to this metric:
As Maartunn highlights in the chart, the Bitcoin hash band has seen a crossover recently. More specifically, the crossover involves the 30-day line moving below the 60-day line, which means miners are capitulating.
A miner’s profit depends on three factors: the BTC spot price, transaction fees, and the cost of electricity in the region. The block reward only has this variable attached) and the electricity price.
Recently, BTC prices have been in consolidation, and during the recent halving event, block rewards were also slashed in half. This has resulted in a revenue crunch for these chain validators, so it’s no surprise to see miners with the least efficient machines already starting to abandon the network in droves.
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In the chart, past instances of miner capitulation are shown as green lines. As can be seen, while miner capitulation often does occur near profitable buying points for an asset, these bottoms do not occur immediately after the crossover occurs. As analysts noted, “This will play out in the coming days and weeks after less efficient miners throw in the towel.”
bitcoin price
Bitcoin has continued to remain flat overall over the past week, with its price still trading around $62,700.
Featured images via Vasilis Chatzopoulos on Unsplash.com, CryptoQuant.com, chart via TradingView.com
