Bitcoin Hash Ribbons Form Capitulation Signal: What It Means

On-chain data shows the Bitcoin Hash Ribbons have recently gone through a crossover. Here’s what it could mean for the cryptocurrency.

As explained by CryptoQuant community manager Maartunn in a Quicktake post, miners are capitulating right now if the Hash Ribbons indicator is to be believed. This on-chain metric is generally used to determine whether miners are in distress.

BTC runs on a proof-of-work (PoW) consensus mechanism where miners play the role of validators and compete against each other using computing power to get a chance to add the next block to the chain.

This computing power, when measured across the network, can provide insight into the health of the miners as a whole. Due to this reason, the Hash Ribbons indicator makes use of this total Bitcoin “Hashrate” to judge the situation of the miners.

Naturally, a rise in the Hashrate suggests the network is attracting miners right now, while a decline could imply low profitability is making some of these validators pull out from BTC.

The Hash Ribbons indicator uses two moving averages (MA) of the Hashrate, 30-day and 60-day, to represent whether these behaviors are particularly intense or not at the moment. When the 30-day ribbon moves under the 60-day one, it suggests that miners are mass capitulating. On the other hand, the opposite cross suggests network is observing growth again.

Now, what relevance do these trends have for Bitcoin? According to Charles Edwards, the creator of the Hash Ribbons, the miners have historically been quite resilient, and they only quit when things get especially bad for the cryptocurrency. As such, the market may be more likely to approach a bottom whenever these chain validators show capitulation.

Below is a chart that shows how the miners’ behaviour has looked recently according to this indicator:

As Maartunn has highlighted in the graph, the Bitcoin Hash Ribbons have seen a crossover recently. More specifically, the cross has involved the 30-day moving under the 60-day, implying that the miners are capitulating.

Miner profits come down to three factors: BTC spot price, transaction fees, and electricity costs in the area that they are located in. Historically, the fees has been quite low in comparison to the block rewards, so miner financials have been dependent on the price (as the block rewards only have this variable attached to them) and electricity prices.

Recently, the BTC price has been stuck in consolidation while the block rewards have been slashed in half in the latest Halving event. This has led to tightening revenues for these chain validators, so it’s not surprising to see that the miners with the least efficient machines have already started ditching the network in hordes.

In the chart, past instances of miner capitulation are shown with the green lines. It’s visible that while miner capitulation has generally indeed occurred near profitable buying points into the asset, these bottoms haven’t immediately appeared after the crossovers have occurred. As the analyst notes, “It unfolds in the subsequent days and weeks after less efficient miners throw in the towel.”

Bitcoin has continued to move overall flat over the past week as its price is still trading around $62,700.