Hash Band Gives Buy Signal – Has Bitcoin Already Bottomed?
One of the most reliable signals to buy BTC has flashed. The Hash Ribbon is an indicator based on the health of the Bitcoin network, which has historically indicated large increases. Moreover, in most cases it has also served to mark macro bottoms in the BTC price.
In today’s article, BeInCrypto recalls the definition and historical correlation of the Hash Ribbons indicator with the Bitcoin price. Next, we analyze the average ups and downs of the BTC price following a buy signal. Finally, we look at the characteristics of the last signal and ask if the $17,592 level will hold.
What are Hash Ribbons?
The Hash Ribbons indicator is based on a fundamental parameter of the health of the Bitcoin network – the hash rate. In the simplest terms, the hashrate is the amount of computing power that BTC miners are generating at any given time.
Hash Ribbons are based on the ratio of two simple moving averages (SMA) of the hash rate: the 30-day SMA and the 60-day SMA. The indicator was created by Charles Edwardswho described how it works in a 2019 article. The author calls it “the most powerful signal to buy Bitcoin ever.”
In addition, Edwards added two more moving averages of the Bitcoin price: the 10-day and 20-day SMA. According to the author, this allows to increase the precision of the indicator and reduces the possibility of the price falling to a maximum of -15% from a buy signal.
The procedure for generating a blue buy signal consists of 3 steps:
- Surrender of miners: 30-day SMA falls below 60-day SMA, the chart turns red.
- End of capitulation: The 30-day SMA rises above the 60-day SMA, the green dot lights up, the chart turns green.
- Recovery of BTC price momentum: The 10-day SMA of the Bitcoin price rises above the 20-day SMA, and the blue “buy” dot lights up.
The chart below shows all instances where the Hash Ribbons buy signal has flashed from the beginning of 2015 until today. Also before 2015, the signal appeared four times, but the volatility of the BTC price at that time and the gains were so large that we will not include them in this analysis.
Signal to buy vs. Bitcoin price
The basic interpretation of the blue “buy” signal is that the bottom generated by BTC before the signal occurs is a historical macro bottom. In other words, the price of Bitcoin never falls below the minimum that preceded the signal from the Hash Ribbons.
Historical analysis confirms this interpretation, but at the same time contains two exceptions to the rule. In the vast majority of cases, the bottom before the blue signal was a macro bottom for BTC, and the price never fell below it again (red circles). But in two cases – from December 2019 and the last from August 2021 – this did not happen (orange circles and arrows).
In both cases, Bitcoin fell about 40% below the previous low, and the Hash Ribbons signal failed in the long run. However, this does not mean that there were no increases after the blue dot appeared. On the contrary, Bitcoin rose immediately after the signal, but the macro bottom was later reached below the signaled level.
It is worth adding that if the Hash Ribbons signal now behaved as in most cases, the level below which BTC prices should never fall again is the bottom of $17,592 on June 18, 2022 (green circle).
Hash band: average increase
In the next step, we can calculate the average increases achieved by the BTC price from the bottom before the buy signal to the local top. If we take into account all 9 signals from Hash Ribbons since 2015, we get an average increase of 614%. In contrast, in the aforementioned two cases of falling below the previous bottom, the BTC price lost about 40% before resuming the upward trend.
The above calculation can also be done in a slightly different way. Instead of measuring from the bottom before the buy signal, you can measure the behavior of the BTC price directly from the moment the blue dot appears.
A detailed analysis of this methodology is provided in a regularly updated article from HonestCrypto. The table presented there includes all historical signals from Hash Ribbons, including those from before 2015. Also, any gains are measured to the absolute, rather than local, peak of a given cycle. Therefore, the increases shown there over historical periods are extraordinarily high.
Indeed, it turns out that average results for all 14 signals from the Hash Ribbon give a maximum increase of 3584%. In contrast, the average risk of decline is only 10%. In addition, the largest decline occurred after the December 2019 signal and amounted to 45%.
Long capitulation and bottom at $17,592
Finally, it is worth taking a closer look at the latest signal from the Hash Ribbons indicator, as it has several interesting features. First, the capitulation of the miners who preceded the blue signal lasted 71 days. This makes it the third longest surrender in history. It began on June 8, 10 days before the low of $17,592, and ended on August 18. The relatively long capitulation period was highlighted by Edwards himself in a recent tweet:
Second, the buy signal occurred on August 19, when Bitcoin recorded a daily decline of 10%, dragging down the entire cryptocurrency market. To generate the signal, it requires the 10D SMA of the BTC price to rise above the 20D SMA. This is quite unusual behavior, as historically the “buy” signal usually appeared on neutral or bullish candles.
And thirdly, the key level is now the bottom at $17,592 (green circle and line). If BTC defends this level and the price does not fall below, the Hash Ribbons signal has a chance to behave as in most historical cases. If, however, this does not happen, it will be the third instance of the blue signal’s ineffectiveness. This will again call into question the further validity of this indicator.
For Be[In]Crypto’s Latest Bitcoin (BTC) Analysis, click here.
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