Bitcoin Hash Ribbon Update - Capitulation Again?

[ImThour]

Hi,

On 10th June, I made this post: Bitcoin Hash Ribbons Capitulation Alert!
Where I told everyone about the Capitulation Signal by Bitcoin, and since then, we are almost 40% down.

Today, Bitcoin has made another capitulation signal on Daily Timeframe:


Also, we are in a pennant which is usually a trend continuation pattern.
Not saying we will go 40% down again, but a move down maybe incoming.

Stay safe, thanks for reading this out. Let me know what you think about it.

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[dragonvslinux]

Thanks for the new thread, was going to post this update on the other  

This otherwise doesn't look good at all, even though it's only the first (unconfirmed) day of a new capitulation phase. Hoping it'll simply be another correction due to stagnation of growth would be naive at this point.



The last time we had a secondary capitulation after hash rate recovery prior to a buy signal (hash & price recovery) in the past few years was in May 2021 (as highlighted below). The recovery arrived at $43K prior to price dropping to $29K, however the secondary capitulation occurred at $35K, so I find it bit vague as to whether there will be much more significant downside at present.



If we are to consider the original analysis of the potential for a 50% drop from this hash rate capitulation, that originally occurred at $30K, then there could still be a target of $15K. Either way, I think it's too early to tell. The hash rate could still recover by the end of the week signalling a recovery, or otherwise another phase of capitulation. The fact that the recovery was only signalled on the Daily chart is a concern though.

Notably while today there was a drop in hash rate to the lowest level in the past 2 weeks, the average mining cost as of yesterday was $23.4K, a considerable increase from two days before at $18.3K. It seems likely that both of these spikes (both up and down) will be short lived. Already today's decline in hash rate could well price the mining cost back below $20K for example, for further hash rate recovery.

[GreatArkansas]

(.....)
Also, we are in a pennant which is usually a trend continuation pattern.
Not saying we will go 40% down again, but a move down maybe incoming.

Stay safe, thanks for reading this out. Let me know what you think about it.

I'm afraid of the pennant and yes you are right it is a trend continuation, especially since we are in a bear market structure so if ever the pennant will break below then the dumps will continue.
I am also worried about this month's candle, I want to see that we will close the monthly candle green. If yes, that's the time I can consider reversal for a short term period.

[OgNasty]

This seems like the age old argument of whether Bitcoin price follows hashrate, or whether hashrate follows the Bitcoin price.  I am a believer that people add new hashrate when it's profitable to do so, meaning they are reactive to the market price.  I doubt big businesses are doing their cost calculations and deciding to expand when it isn't profitable to do so (although historically this has been the move when spending USD on miners).  So I believe that you've got your post backwards and the hashrate is reacting to things slower than you think.  It takes time for operations to react. 

Judging from the size of this drop in hashrate (a drop for ants), I would say that we also have very different opinions when it comes to capitulation. 

[dragonvslinux]

Notably while today there was a drop in hash rate to the lowest level in the past 2 weeks, the average mining cost as of yesterday was $23.4K, a considerable increase from two days before at $18.3K. It seems likely that both of these spikes (both up and down) will be short lived. Already today's decline in hash rate could well price the mining cost back below $20K for example, for further hash rate recovery.

Somewhat as anticipated hash rate is bouncing back, with the average mining cost has dropped to a new low of $16,780. While today price moves back up to $22K. This hasn't had any immediate affect on hash rate's 30MA or 60MA, but with price maintaining higher levels and such a low average mining cost, the likelihood of hash rate recovering significantly increases at present, despite the bearish looking indicator:



Mining difficulty otherwise dropped -1.4% yesterday, providing a helping hand to miners, with the next estimated difficulty in 12 days currently at +5.1% average. 1 month ago hash rate hit an ATH, so factoring in the slight decline from this date, if hash rate can maintain it's current highs, then the 30MA can recover relatively quickly. Likewise the 60MA would otherwise stop declining based on 60 days of data.

Hash rate: https://www.blockchain.com/en/charts/hash-rate
Mining cost: https://en.macromicro.me/charts/29435/bitcoin-production-total-cost
Difficulty: https://www.bitrawr.com/difficulty-estimator

[dragonvslinux]

Yesterday hash rate reached the lowest level since February 5th, also the second lowest level of the year. This is now very much having the effect of a "miner capitulation" that the indicator signaled:



Unlike last months capitulation that was short-lived while hash rate consolidated sideways, this second wave is highlighting the weakness in Bitcoin's hash rate as both the 30MA and 60MA decline:



While Bitcoin's price currently hovers around $20K, the average cost of mining has been approximately between $17K and $20K in recent days. While generally the mining difficulty has been slowly declining, it hasn't been enough to provide any relief to Bitcoin's slowing hash rate. As referenced previously, a drop below the local low of $17.6K would likely see a considerable drop in both hash rate and difficulty.

[dragonvslinux]

As a quick update, based on news that Bitcoin's cost of production could be nearer $13K*, as opposed to most recent estimate of $23.7K:



While miners continue to capitulate at current prices and mining costs, so far we've seen a -5% correction from the capitulation level based on MA crossover. For reference sake and in comparison to other capitulations, in 2020 there were 3 capitulations; twice of -10% and one approximately -6%. Whereas in 2018 it was nearer -25% and in 2021 (China's mining ban) it was -40%.

Mining difficulty average is currently estimated at -3.8% in 6 days, continuing the decline since the end of May. While difficult to tell how far hash rate will correct, as will be largely determined be Bitcoin's future price movements (currently at $20.8K), the capitulation could be half complete already based on 2020 corrections, or otherwise only only just beginning if based on 2018 or 2021.

*As for JP Morgan's estimate of $13K for mining costs, there appears to be a complete lack of reference or evidence to substantiate such a claim. If this is indeed the case, then the capitulation could be over a lot quicker than expected if Bitcoin's price remains above this level. Overall, it seems very unlikely this is a correct estimate of Bitcoin's mining cost, as otherwise there wouldn't be such a capitulation if it were.

[dragonvslinux]

Yesterday signalled the first day of hash rate beginning to recover, otherwise showing signs that the capitulation could be over for now as downwards momentum subsides:



Notably while hash rate remains stable even with a general decline, the MA30 and MA60 paint a different picture in the long-term. Most notably average mining costs remain low at $17.3K while price has moved up to $22.2K, which should encourage some miners to switch back on in the near future. If price can maintain higher levels with such relatively low production costs, a recovery of hash rate becomes likely.

[dragonvslinux]

Not much of an update today. Hash rate continues to decline while yesterday there was a -5% drop in difficulty. Maybe tomorrow there will be slight recovery of hash rate recorded from yesterday's values:



Despite average mining costs staying below $20K (and price remaining above this level), hash rate has continued to decline based on raw values (as of yesterday) as well as the MA30 and MA60. Regardless of the positive price action in recent days as well as the significant drop in difficulty, the miner capitulation continues even if not at a particularly aggressive rate as price remains above mining costs.

Despite bullish optimism in the market recently, miners remain bearish.

[dragonvslinux]

Miners are getting some relief today as the 30 MA rises slightly and the 60 MA flattens out. With price around $22K and average mining cost around $16.8K you'd certainly hope so.



This has otherwise turned out as the 3rd longest capitulation after 2021 and 2018, even if much less aggressive. It does otherwise look like these MAs could turn around any day now.



This indicator has otherwise been added to my bucket list for a Bitcoin low, based on historical accuracy of confirming network strength  

[dragonvslinux]

With yesterday's price action, hash rate continues to slowly recover. As daily values begin to increase again, the MA30 is beginning to trend higher as well, as mining costs remain low around $17K.



While hash rate looks set for a recovery, based on price currently being +33% higher than average mining costs, it also looks like it'll take some time to accomplish based on slower moving MAs (30 & 60). With mining difficulty currently estimating an average of +3.5% change in a week, this could consequently slow down the already slow recovery, despite mining profitability increasing in recent days.

With price otherwise maintaining higher levels, the main requirement for a recovery and therefore buy signal is currently time as opposed to price. Otherwise known as the waiting game...

[dragonvslinux]

Despite showing signs of recovering in recent days, hash rate has now continued to decline as miners continue to capitulate, despite price currently 9% above average mining cost of $21.8K.



While indicators such as Puell Multiple suggest a recovery of hash rate is underway or imminent, the hash rate itself suggests otherwise.

[Wind_FURY]

Despite showing signs of recovering in recent days, hash rate has now continued to decline as miners continue to capitulate, despite price currently 9% above average mining cost of $21.8K.



While indicators such as Puell Multiple suggest a recovery of hash rate is underway or imminent, the hash rate itself suggests otherwise.

Miners are speculators too, and I believe also something like quasi-energy traders. There's probably an expectation of higher electrcity prices per kilowatt hour within the year and they might be, moving some of their mining gear to other locations/regions with cheaper electricity, or because they're also "quasi-energy traders", they are scaling down because the market is bad.

[buwaytress]

Interesting thread, only as haven't really seen anything quite like this before. At least not with a sort of price barometer in parallel.

Have to say though that last cycle didn't see miner capitulation that would have given much of indication about impending lows though did it? 2020 comes to mind.

[Wind_FURY]

Interesting thread, only as haven't really seen anything quite like this before. At least not with a sort of price barometer in parallel.

Have to say though that last cycle didn't see miner capitulation that would have given much of indication about impending lows though did it? 2020 comes to mind.

But what it miner capitulation? There are some people who say it like miners will stop, and turn off their mining farms. There will be no such thing because if mining farm 1 was shut off, mining farm 2 will say "thank you" and celebrate, with  someone new building mining farm 3 because there's opportunity to arbitrage the "Bitcoin energy trade".

[dragonvslinux]

Miners are speculators too, and I believe also something like quasi-energy traders. There's probably an expectation of higher electrcity prices per kilowatt hour within the year and they might be, moving some of their mining gear to other locations/regions with cheaper electricity, or because they're also "quasi-energy traders", they are scaling down because the market is bad.

This is probably a factor for continued decline of hash rate I agree, or why it at least it hasn't recovered as quickly as you might expect.

Have to say though that last cycle didn't see miner capitulation that would have given much of indication about impending lows though did it? 2020 comes to mind.

In 2018 miner capitulation signalled at $6.4K in October before the drop to $3.2K. The buy signal then arrived at $3.5K quite conveniently a few months later.
In March 2020 it signalled at $5.8K (after the big drop) with a buy signal at $7.7K. Throughout 2020 the capitulation prices were lower than the buy signal prices.

Despite the misleading phrase, the indicator was never intended to be used to predict any price movements to the downside, only to the upside (based on network recovery followed by growth).

But what it miner capitulation? There are some people who say it like miners will stop, and turn off their mining farms. There will be no such thing because if mining farm 1 was shut off, mining farm 2 will say "thank you" and celebrate, with  someone new building mining farm 3 because there's opportunity to arbitrage the "Bitcoin energy trade".

I assume you mean what is? It simply means hash rate in the mid-term (30 to 60 days) is correcting, or reducing. It ironically doesn't imply an outright capitulation of miners, like hash rate dropping in half such as in 2021. While some miners switching off will mean others will switch on, especially when difficulty is reducing, and some miners are paying much higher for electricity, this doesn't always occur immediately afterwards.

For example at the moment difficulty and hash rate have been reducing for around 8-10 weeks now, so there are more miners switching off than on and not enough "thank you very much". At least not yet.

[buwaytress]

In 2018 miner capitulation signalled at $6.4K in October before the drop to $3.2K. The buy signal then arrived at $3.5K quite conveniently a few months later.
In March 2020 it signalled at $5.8K (after the big drop) with a buy signal at $7.7K. Throughout 2020 the capitulation prices were lower than the buy signal prices.

Despite the misleading phrase, the indicator was never intended to be used to predict any price movements to the downside, only to the upside (based on network recovery followed by growth).

Yeah, looking at it as a buy signal in 2018 might not have worked the treat it could in 2020, but still, it would have provided a good bargain price (though not for the serious leveraged buyers I suppose).

I'm still not sure this time around it works the same, but I'd be really happy to be proven wrong -- I still think the macros are a lot more serious now, and with plenty of pitfalls left to come.

[dragonvslinux]

Hash rate is currently attempting it's third recovery since capitulation began almost 2 months ago as the MA30 begins to rise again, while average mining costs remain low at $18.9K:



It's worth noting that this remains to be seen only on the daily chart, on the 3D or weekly chart there is are still no signs of hash rate recovering yet:



It's hard to tell whether price moving above $25K will generate the recovery of network growth, or whether price will consolidate between $22K and $24K that will eventually give hash rate time to recover for a buy signal to occur. Either way this remains my final signal for confirmation of a low, so it's hardly surprising there hasn't been a buy signal as Bitcoin's price remains below $25K.

[dragonvslinux]

Despite hash rate continuing to consolidate at the lows, based on this indicator, hash rate is continuing to recover with now the 3 day chart confirming a recovery is underway (even if far from complete). Given this indicator is based on 1 and 2 month MAs (roughly), it's far from surprising given previous hash rate ATH was 2 months ago and recent low was around 1 month ago, therefore changing the course of these MAs.



With mining costs remaining relatively low around $21K as price trades around $24K, miners appear to have stopped capitulating (reducing network hash rate), after 8 weeks of correction. Generally this can be identified quite clearly from the average mining cost, as this month price has remained above the cost of production, compared to June and July when price regularly fell below (and therefore miners were switching off).

[dragonvslinux]

Despite hash rate continuing to consolidate at the lows, based on this indicator, hash rate is continuing to recover with now the 3 day chart confirming a recovery is underway (even if far from complete).

As hash rate continues to consolidate, forming a sort of symmetrical triangle, the 30 and 60 MAs are getting closer to a bullish cross-over (recovery) as can be seen on the weekly chart:



As price holds above $24K and average mining cost now around $21.6K, a break-out to the upside for price could certainly see more miners switching on and therefore a recovery confirming. Based on the current trajectory of hash rate's MAs, it seems a bullish cross-over could occur in the next week or two, if price is able to maintain above average cost of production. A significant break-out above $25K would likely achieve this I think, given many miners began to switch off as price broke below this level, at a time when average mining costs were nearer $30K than $20K.

This would then provide the first buy signal with this indicator since August 2021 around $43.8K, prior to price increasing by more than 50% in the following weeks.