Bitcoin could be poised for outsized gains if recent technical signals are to be believed.
Investors have been searching for a bottom to bitcoin since the cryptocurrency lost more than 60% of its value from the all-time high of nearly $69,000 it hit in November. Nearly $2 trillion has been wiped off the entire crypto market in recent months.
A measure of activity of bitcoin miners could give investors a clue as to where the digital currency is headed next.
Miners validate transactions on the bitcoin network using highly-specialized and power-intensive computers to solve complex mathematical puzzles. They are rewarded in bitcoin for their efforts. As more bitcoin is mined, solving these puzzles becomes more difficult.
During market slumps, a depressed bitcoin price can make it unprofitable for many miners to continue operations. They then sell some bitcoin to keep afloat. But they also turn off their mining rigs to save money.
That has happened in the latest market slump and can be demonstrated by "hash rate," a measure of computational power used to mine bitcoin. Since mid-May, when the market really started to sell-off, the 30-day average hash rate (a monthly average value) fell more than 7% and at one point saw a 10% dip. That signaled that miners were turning off their machines.
Hash rate, studied in various ways, is used by crypto investors to try to figure out when the market might bottom, because capitulation and a shakeout of the miners is often associated with the late stage of a bitcoin cycle.
"Historically speaking, capitulationin the mining market has tended to correspond strongly with overall market bottoms," Matthew Kimmell, digital asset analyst at CoinShares, told CNBC via email.
Following on from this, Charles Edwards, founder of quantitative crypto fund Capriole Investments, came up with the idea of "hash ribbons" in 2019 to identify buying opportunities for bitcoin.
When the 30-day moving average for hash rate dips below the 60-day moving average, this is called a bearish cross, and signals that miners are shutting down machines. Usually selling is associated with these events. As more miners are taken out of the market, the difficulty of mining bitcoin reduces because there is less competition.
Because of the reduced competition, more miners may re-enter the market and a recovery may occur.
"These 'capitulations' are painful events for miners within the ecosystem," Edwards told CNBC.
But using Edwards' method, when the 30-day moving average for hash rate crosses back above the 60-day moving average, the worst of the miner capitulation tends to be over.
When this happens along with the 10-day moving average price of bitcoin going above the 20-day moving average price, then this is when a "buy signal" flashes, according to Edwards.
He said those crosses occurred on Saturday.
In the past, buying bitcoin at these points would have yielded strong returns depending on how long you held the cryptocurrency for, according to Edwards.
For example, purchasing bitcoin at the buy signal of August 2016 would have given an investor a more than 3,000% return if held to the peak of December 2018, which was at the time when bitcoin hit a new record high.
More recently, buying during the recent buy signal in August 2021, would have yielded a more than 50% return if bitcoin was sold at the November 2021 record high.
"I created Hash Ribbons in 2019 as a way to identify when major Bitcoin mining capitulation had occurred, as once recovery resumes from these events, they typically markmajor Bitcoin price bottoms," Edwards said. "Historically, these have been great times to allocate into Bitcoin, with incredible returns."
Kimmell from CoinShares said that the logic behind the buy signal is that if the bitcoin price "tends to steadily outpace hashrate before a period of high price growth, then a trending rebound in hashrate," marked by the 30 day moving average for hash rate crossing above the 60 day moving average, it "may mean the rebound in bitcoin price has already begun."
"I find this metric should not be solely relied upon to make an investment decision, but can certainly be helpful if coupled with a suite of other metrics and qualitative evidence," he added.
CoinShares has put together a graph to show the correlation between hash rate and the bitcoin price. And it is split into areas where there is "gold rush" as bitcoin's price rises, and a subsequent inventory flush and miners' shakeout as the price declines.
In a chart provided to CNBC, CoinShares suggests that the market is currently in the shakeout period which typically precedes rebalancing and a rally in prices. Right now, according to the chart, the bitcoin price line is below the hash rate.
The graph shows the movement of bitcoin hash rate versus bitcoin price at different stages in the cycle.
CoinShares
But this could signal a bottom is near, according to Kimmell.
"It is impossible to say if we have reached full capitulation, however there is evidence we are in the phase of the mining cycle where capitulation most often occurs. Secondarily, if previous cycles carry predictive power, then yes, bitcoin price steadily outpacing hashrate would likely precede a period of high price growth," Kimmell said.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, holds a similar view.
"I think we have seen broad signs of capitulation given the events in the previous months. Hence it is likely we could have the beginnings of a bottom being formed. Usually bitcoin consolidates in a range for a whole which indicates accumulation, which is what we may be seeing," Ayyar told CNBC via text message.
Bitcoin has been trading in a tight range of around $18,000 to $25,000 since mid-June.
However, there are risks that these indicators do not prove as positive as they have been in the past because of the broader macroeconomic environment.
The current global economy is in a very different state versus previous cryptocurrency cycles. There is rampant inflation and rising interest rates globally, aspects which have not been present before.
Risk assets such as U.S. stocks, and in particular the Nasdaq, to which bitcoin is closely correlated, have seen a big sell-off this year.
"Of course all this is still based on historical similarity, and we are in a different macro environment," Ayyar said.
"The major risk remains the economy and inflation, but even then we are closer to an inflation peak than not, and hence this also shows that on risk assets we are closer to a bottom than not."
- Drake Just Lost $500,000 in Bitcoin Betting on the NBA Finals - Decrypt - June 18th, 2024
- Bitcoin Plunges to $65K, Altcoins Bleed 10%-20% as Week Turns Ugly - CoinDesk - June 18th, 2024
- Should You Buy Bitcoin While It's Less Than $70,000? - The Motley Fool - June 18th, 2024
- First Bitcoin ETF to List on Australia's Bourse in Global Wave - Bloomberg - June 18th, 2024
- Bitcoin Move on the Horizon Following Rare Quiet Period, According to On-Chain Analyst - The Daily Hodl - June 18th, 2024
- $66K BTC price now 'critical' 5 things to know in Bitcoin this week - Cointelegraph - June 18th, 2024
- Breaking Bitcoin with Casey Rodarmor - What Bitcoin Did - June 18th, 2024
- Why The U.S. Should Focus On Bitcoin Mining Policy - Forbes - June 18th, 2024
- Bitcoin, Dogecoin, and Ethereum Volatility Drive $290 Million in Liquidations - Decrypt - June 18th, 2024
- Trump says he wants all remaining Bitcoin to be made in the US - Reuters - June 18th, 2024
- T-Mobile owner Deutsche Telekom will soon mine Bitcoin in addition to running nodes - The Block - June 18th, 2024
- The Bitcoin Halving: Everything you need to know - Coinbase - June 18th, 2024
- Crypto-Breakthrough Bill Could See Bitcoin, Ethereum, and BlockDAG Network Prices Skyrocket Very Soon - Yahoo Finance - June 18th, 2024
- Ethereum poised to 50% surge this year against Bitcoin Fractal analysis - Cointelegraph - June 18th, 2024
- Bitcoin nears $65,000 as the selling pressure continues - ForexLive - June 18th, 2024
- Bitcoin Price Falls Below $66,000, Bond Yields Weigh. Ether Awaits Crypto ETFs. - Barron's - June 18th, 2024
- Donald Trump wants US to rule Bitcoin mining industry - Cointelegraph - June 18th, 2024
- How This Bitcoin Developer Lost 25,000 BTC - BeInCrypto - June 18th, 2024
- MicroStrategy Increases Convertible Note Offering by 40% to $700M in Bitcoin Splurge - CoinDesk - June 18th, 2024
- Bitcoin Mining Cost At $86,700: Price To Surpass This Soon? - NewsBTC - June 18th, 2024
- 3 reasons why Bitcoin analysts believe BTC price recovery is overdue - Cointelegraph - June 18th, 2024
- Analysts Predict BTC Hitting $200,000 Next Year and $1 Million by 2033 'We Believe Bitcoin Is in a New Bull Cycle ... - Bitcoin.com News - June 18th, 2024
- Leak Reveals Joe Biden Could Be Planning A Crypto Coup Amid Bitcoin, Ethereum And XRP Price Swings - Forbes - June 18th, 2024
- Drake on Brink of $1M Bitcoin Loss as NHL and NBA Bets Sour - CoinDesk - June 18th, 2024
- Bitcoin, Binance, Ethereum, Solana, and Ripple: The Biggest Crypto News of the Past Week - Cointribune EN - June 18th, 2024
- Bitcoin price pressured by whales, long-term holders, and miners: Bitfinex - Crypto Briefing - June 18th, 2024
- Michael Saylor Reacts to Bitcoin Dropping Below $67,000 by Sharing Crucial Advice - U.Today - June 18th, 2024
- Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Bitcoin retesting its major resistance level - FXStreet - June 18th, 2024
- Donald Trump Speaks On Bitcoin Mining, Wants 'All The Remaining Bitcoin To Be Made In The USA' - Benzinga - June 18th, 2024
- Almost $500M in Liquidations as Bitcoin (BTC) Dumped to $64K and Alts Bled Out - CryptoPotato - June 18th, 2024
- Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC likely to take markets on a rollercoaster - FXStreet - June 10th, 2024
- Bitcoin in the red to end the week after better-than-expected May jobs report - CNBC - June 10th, 2024
- Bitcoin Could Lift to $83K in the Coming Days, Analyst Says - CoinDesk - June 10th, 2024
- Best Places to Buy Bitcoin in 2024 - The Motley Fool - June 10th, 2024
- Bitcoin to reach $150,000 if Trump wins presidency: Standard Chartered - CNBC - June 10th, 2024
- Report: Speculation Returns as Bitcoin Market Shows Signs of Recovery Market Updates Bitcoin News - Bitcoin.com News - June 10th, 2024
- Bitcoin And The Future Of The Lightning Network - Forbes - June 10th, 2024
- Bitcoin Braced To Go 'Parabolic' After 'Amazing' 2017 Price Breakout Repeat - Forbes - June 10th, 2024
- Is Bitcoin On Track to Make a Big Move and Hit $100,000 in 2024? - The Motley Fool - June 10th, 2024
- Bitcoin network transaction fees temporarily soar to nearly $52 - Cointelegraph - June 10th, 2024
- XRP Reached Multi-Month Low, Solana (SOL) on Strongest Support, Bitcoin (BTC) Price Drop Is Better Than You Think - U.Today - June 10th, 2024
- Bitcoin Dips Below $70K, Reaches $68450 Low, $86M in BTC Longs Liquidated Markets and Prices Bitcoin News - Bitcoin.com News - June 10th, 2024
- Demand Growth for Bitcoin Surges: What Does This Mean? - CryptoPotato - June 10th, 2024
- First Mover Americas: Bitcoin Futures Positions Top Record $37B as Analysts Predict Bitcoin Surge to $83K - CoinDesk - June 10th, 2024
- Crypto for Advisors: Layer 2s and the Evolution of Bitcoin - CoinDesk - June 10th, 2024
- Bitcoin Wyckoff pattern eyes $85K, but BTC price must close the week above this level first - Cointelegraph - June 10th, 2024
- Visualizing the 15 Most Valuable Bitcoin Addresses - Visual Capitalist - June 10th, 2024
- First Mover Americas: Bitcoin Fluctuates Around $71K, Consolidating This Week's Rally - CoinDesk - June 10th, 2024
- Bitcoin, Ethereum, and XRP Price Prediction: Will Bulls Make A Comeback This Week? - Coinpedia Fintech News - June 10th, 2024
- Bitcoin volatility hovering within 6% of record low levels - Cointelegraph - June 10th, 2024
- Why Did the Bitcoin Price Crash Below $70K and is the Bleeding Over? (Bitcoin Price Analysis) - CryptoPotato - June 10th, 2024
- Bitcoin Halving: How It Works And Why It Matters - Forbes - June 10th, 2024
- Mexican Billionaire Says to Buy Bitcoin, Musk vs. Nakamoto, and More Week in Review The Weekly Bitcoin News - Bitcoin.com News - June 10th, 2024
- Bitcoin: Etfs Accumulate 19 Consecutive Days Of Inflows! Ibit Leading The Way! - Cointribune EN - June 10th, 2024
- From AI to Bitcoin Mining: Heres a Timeline of Tethers Latest Investments - CryptoPotato - June 10th, 2024
- Forget Bitcoin: 3 Cryptocurrencies to Consider Instead - The Motley Fool - June 10th, 2024
- Key Reason Why Bitcoin Price Has Not Topped $70K Named by Top Trader - U.Today - June 10th, 2024
- Standard Chartered Sees Bitcoin Soaring to $150,000 by Year-End If Trump Wins Presidency - Yahoo Finance - June 10th, 2024
- Peter Brandt Predicts Bitcoin Bull Market With BTC Potentially Reaching $150000 Markets and Prices Bitcoin News - Bitcoin.com News - June 10th, 2024
- Polymarket Bets Show Growing Confidence in Trump's Election Victory Over Biden Bitcoin News - Bitcoin.com News - June 10th, 2024
- Bitcoin Tops $65,000 as Fund Inflows, Upcoming Halving Event Fuel RallyKey Level to Watch - Investopedia - March 5th, 2024
- Coinbase Stock Jumps. A Bitcoin, Crypto Frenzy Is Fueling Its Rally. - Barron's - March 5th, 2024
- Bitcoin Tops $67,000 on ETF-Led Demand Even With GBTC Outflows - Yahoo Finance - March 5th, 2024
- Bitcoin Has $70,000 In Its Sights: Stocks to Watch - Yahoo Finance - March 5th, 2024
- Are The Bitcoin ETFs Eating Golds Lunch? - Forbes - March 5th, 2024
- BlackRock looking to include Bitcoin exposure in other funds - CryptoSlate - March 5th, 2024
- Bitcoin Price Explained: Why the Crypto Is Surging Back to All-Time Highs - Markets Insider - March 5th, 2024
- Bitcoin ETF snapshot: Record volumes lead to second-best weekly inflows - Blockworks - March 5th, 2024
- MicroStrategy to Offer $600 Million in Convertible Notes to Buy More Bitcoin - Bloomberg - March 5th, 2024
- US Government Continues Bitcoin Seizures, Controls Nearly 1% of Circulating Supply - Bitcoin Magazine - March 5th, 2024
- Bitcoin value climbs above $65000, one step from all-time record - Euronews - March 5th, 2024
- What's driving the bitcoin surge? Experts weigh in. - ABC News - March 5th, 2024
- Bitwise CIO Says Bitcoin Could Top $200K This Year Citing 'Too Much Demand, Not Enough Supply' Markets and ... - Bitcoin.com News - March 5th, 2024
- MicroStrategy will use proceeds from convertible note sale to add to bitcoin stash - Blockworks - March 5th, 2024
- Is the Bitcoin halving the right time to invest in BTC? - Cointelegraph - March 5th, 2024
- These multi-billion-dollar banks are joining the bitcoin fray as price breaks $67000 - TheStreet - March 5th, 2024
- An Interesting (and Cheaper) Way to Play Bitcoin - RealMoney - March 5th, 2024
- Restricting access to growing bitcoin ETFs becoming 'hard to justify' - Blockworks - March 5th, 2024
- Bitcoin (BTC) Price To Hit New ATH in Next Few Hours, What To Expect Next? - Coinpedia Fintech News - March 5th, 2024
- Its Happening!Huge Mystery Whale And Sudden $65,000 Bitcoin Price Surge Fuels Secret Sovereign Bid And Tech Billionaire Predictions - Forbes - March 5th, 2024