Mining Indicators Suggest Bull Rally Just Beginning — Bitcoin (BTC) On-Chain Analysis

In this article, BeInCrypto analyzes the effects of the bitcoin (BTC) miner migration and takes a look at other mining indicators, such as the difficulty ribbon compression and hash ribbon.

Bitcoin difficulty ribbon compression 

The difficulty ribbon is an on-chain indicator that uses moving averages (MA) of bitcoin mining difficulty. The difficulty ribbon compression adds a standard deviation to this indicator. Historically, values between 0.01 and 0.05 (highlighted in green) have indicated bottoms.

Interestingly, the indicator stayed in the upper portion of this range for almost the entire upward move in 2020. The July rally caused a spike in the difficulty ribbon compression, which reached a high of 0.167. Despite the increase in the price of BTC, the indicator now gives a reading of 0.06, close to the upper portion of this range. 

Historically, there have been three periods in which the difficulty ribbon compression fell to the upper portion of a range after such a spike. 

The first transpired in 2012-2013 (black circles). The return to the upper portion of the range marked the bottom prior to a new upward move. 

The second time happened in 2015-2016 (blue circles). Similarly, the indicator values moved to the upper portion of the range before a rebound.

The third instance transpired in 2019-2020 (red circles). While the BTC price continued to decrease after the return to the range, an upward movement eventually began. It was delayed, however, relative to the previous two times this occurred. 

Therefore, when looking at the historical readings of this indicator, it would be likely that BTC is in the initial stages of a large-scale rally.

Hash ribbon

Unlike the BTC difficulty, which is calculated every two weeks, the hash rate is calculated every day. 

The hash ribbon indicator makes use of the hash rate in order to determine if miners have capitulated. Miner capitulation occurs when the mining costs are higher than rewards. This can be better seen by adding a 30 and 60-day MA to the hash rate. 

A bearish cross between these two MAs is represented in the chart by a shift to a light red area when mining costs overtake rewards. Once the difficulty adjusts, a return to profitability is noted by a shift to a dark red area, and eventually white. 

The indicator was dark red from May 17 to June 3. Historically, such switches from light to dark red have provided great buying opportunities. This was also the case in June 2021 when BTC reached a local bottom. 

Therefore, if history is anything to go by, BTC is in the initial phases of a significant upward move.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.