How to Use the HashRibbons Indicator for Crypto
When it comes to online trading Bitcoin, no other indicator works as well as Hash Ribbons, a special tool designed by Charles Edwards, the co-founder of quantitative asset management company Capriole Investments. The firm focuses strongly on working with various cryptocurrencies with their main focus being the flagship token of the industry — BTC.
If you want to start trading Bitcoin, you need to learn about some of the most interesting indicators that can be used to analyze this particular asset. Hash Ribbons is a unique instrument that offers insight into the correlation between mining and BTC price. The cause-and-effect connection between these two metrics is quite logical and apparent.
When miners are being forced out of the market due to reduced prices, the hash rate drops significantly which often leads to a short period when the price continues going down, but the recovery is usually just around the corner. Miners are known for their defiant stances even during strong bearish markets which means that they will be driven out the last indicating a soon-to-follow recovery after hitting the bottom.
In essence, Hash Ribbons is a specialized indicator that allows you to identify the moment when the market hits its lowest possible mark.
The efficiency of the indicator
Many previous bottoms were successfully predicted by this indicator. Its immense efficiency is tied directly to the sheer volume of supply under the control of miners with many holding market positions. Interestingly, many miners had to liquidate their long BTC positions because of the low profitability of mining further driving prices down during the crypto winter. However, this time, farmers are not so interested in lowering their mining efforts.
Ignoring the current market situation, we can safely assume that when miners start going out and selling their assets, the asset is experiencing something extraordinary allowing us to assume that the worst has happened and the bottom is quite close.
Designers of the indicator have a special name for this phenomenon: miner capitulation. It means that people who run mining rigs are seeing that profits are low and want to either stop mining until it becomes a financially feasible endeavor or completely quit the industry. Capitulation is a major decline in computational power available to the network. Edwards defines it within the range between 10% and 40%.
What are Hash Ribbons?
This indicator is available for the widely used analytical platform TradingView where you can deploy HR on the price chart and see the correlation between the price and the current hash rate. The indicator has two major components:
- A Simple Moving Average of Bitcoin hash rate over 30 days;
- A Simple Moving Average of Bitcoin hash rate over 60 days.
When the 30-day SMA crosses the long-period one while moving downwards, it means that the hash rate is about to start declining meaning that the market is approaching the bottom. The opposite is true when the short-term SMA crosses the 60-day SMA in the upward direction. To create better signals, the indicator even shows special progress bars that end with blue circles showing the most optimal moment for an entry.
Since its introduction, the indicator flagged multiple periods as perfect moments to buy. People who used the signal could potentially make up to 567% if they held until the ATH in December of 2021.
The potential downside of Hash Ribbons
The indicator has a critical weakness which is the fact that the current market is not as tightly connected to mining. With more competing miners entering the scene and more centralized mining corporations focusing on Bitcoin, the pressure from the market is way less apparent. In 2022, during the global recession and the crypto winter, miners continued racing and increasing the overall difficulty of the network cryptocurrency exchange reviews.
As in the case with many other indicators, you should never use Hash Ribbons as a standalone tool that defines your decision-making, but it is certainly a great component for a functional BTC trading strategy! Read more crypto news.
