Last Updated: 21 August 2022
Two indicators seem to indicate that bitcoin is ready for an upward move. Of course, this is not a guarantee and certainly not investment advice, so judge for yourself. In this article, we will first outline the current situation before turning to these two indicators.
Bitcoin worth a third since peak
The bitcoin price reached its highest value ever in November 2021. For a short while, BTC was trading at almost 60,000 euros. Today, there is only about one-third of that. At the beginning of this weekend, the price fell again by 8%, but today BTC seems to be in calmer waters.
The key question is whether this is the time to buy bitcoin and whether the bottom has been reached. For this, we look at a simple and slightly more complex indicator.
Long term bitcoin is simple
Why be difficult when you can be easy? Below is the whole history of bitcoin on crypto exchange Bitstamp. This is one of the oldest exchanges offering bitcoin trading. Each candle in the chart represents one month and the inspiration comes from Gödel.
Since 2012 bitcoin has been moving in an inverted Nike logo. So far, there have been two moments in bitcoin’s history that are reminiscent of the current situation. Both moments came just after major bull runs.
The first was in 2015 after bitcoin briefly hit a thousand dollars for the first time. Just before that. The second time played out after the 2017 bull run. Currently, the price is heading for the lower blue line, and if this model can hold, bitcoin will move up quickly from there.
With a chart like this comes a long-term strategy — one that is not affected by the day-to-day worries of the bitcoin price. One of the best strategies is DCA, or dollar cost averaging. Even though we are talking about dollars, this strategy naturally lends itself to euros as well.
Buying Bitcoin Using DCA Strategy
In short, DCA is a strategy where you invest a fixed amount in small increments periodically rather than all at once. If you want to invest 1200 Euros, with DCA you can choose to invest 100 Euros every month for a year.
However, do not fixate on that period of one year, because that is actually still short-term. No one can say for sure how long the bear market will last.
Hash Ribbon says buy bitcoin
Another indicator is to look at the selling behaviour of miners. To do this we use the indicator hash ribbons, and it just recommends buying.
Miners need money to be able to mine, for energy, location, staff, etc. If the price drops too much, it will impact miners’ income, and they will need to sell more bitcoin from their reserves to stay liquid. This will put additional selling pressure on the market
Charles Edwards developed the hash ribbon to determine if miners are struggling and need to sell bitcoin. Edwards writes that if miners are giving up, this is the best time to buy bitcoin.
Bitcoin mining capitulation over after 71 days
The bitcoin hash ribbon indicator attempts to identify periods when miners are in distress and may capitulate. The assumption is that such periods can occur when the bitcoin price has reached a low point. According to Edwards, the current capitulation period has finally ended after 71 days.
The chart above shows the hash rate (processing power of all miners) on the left. On the right is the bitcoin price in dollars.
The blue line is the moving average of the hash rate over the last 30 days, and the purple line shows the same but over the last 60 days.
But what is really interesting are the orange and green vertical bars.
- Orange: 30 DMA drops below 60 DMA, hash rate drops and miners capitulate
- Green: 30 DMA goes back above 60 DMA, this marks the end of the capitulation of miners
According to Edwards, the creator of this whole metric, orange will now finally switch to green.