BTC is the best-performing digital asset. It has been instrumental in many careers of overnight billionaires that started appearing here and there when Bitcoin skyrocketed in price. Now, it is a much more stable financial instrument considered a reliable store of value by millions of investors across the globe with many people using it as a hedging mechanism against inflation and other factors of the global economy.
Since there is so much liquidity going around, BTC is the most traded asset with a daily trading volume of $43 billion at of time of writing. Considering that it has such healthy metrics even during the crypto winter, it is safe to assume that it will continue its market dominance in the nearest future.
Using technical analysis to predict BTC prices
Since BTC is traded on many open markets and decentralized platforms, many technical analysis approaches work even better when applied to the BTC price chart. There are several indicators that all traders employ to understand price dynamics and make decisions:
- Momentum indicators like MACD or RSI are used to find good moments for a trend reversal and can be instrumental for swing traders and people looking for perfect entry points for a long-term market position.
- Trend indicators allow you to confirm the strength of the current trend and confirm your predictions about the mood in the market. Moving Averages are used more often than any other instrument in this category.
- Volume is a great source of insights into the inner workings of the financial market that you are looking at. When the market hits higher volumes, it usually means that indicators are producing more reliable signals.
These instruments are extremely useful but lack unique approaches to the problem of cryptocurrency analysis. Digital assets have more factors affecting their performances meaning that you need additional sources of information relevant to the crypto industry.
Hash Ribbons is a unique tool designed by Charles Edwards, a prominent financier, and analyst working in the crypto industry. He proposed the idea of “miner capitulation” meaning that at some point the number of miners who are participating in the process of validation will decrease since it is not profitable to mine BTC compared to simply buying. The squeeze would mean that the market is close to the bottom.
This indicator was created to quickly find when the market is approaching the lowest possible price before a new long-term bullish movement.
How to use Hash Ribbons
The indicator has only two notable values:
- A Simple Moving Average showing the value of hash rate over a 30-day period;
- A Simple Moving Average showing the value of hash rate over a 60-day period.
These two lines are moving mostly in parallel but may converge and diverge depending on the market situation and the mood in the mining community. When the short SMA crosses the long SMA in a downward direction, it means that the market is close to its bottom. The opposite is true when the market is ready to start recovering.
Sometimes, the indicator has false flags. While the intensity of mining does provide valuable insights, it is not 100% certain that the hash rate dictates the price as strongly as the authors suggest especially in today’s reality. The crypto industry is highly competitive and the influx of miners and expansions of already operational “farms” makes it hard to make a correct prediction.
Use this indicator in conjunction with other analytical tools such as Relative Strength Index, MACD, Ichimoku, and other traditionally used instruments that have a proven track record in forecasting the market.
Conclusion
Hash Ribbons is one of the most powerful analytical tools available to a trader who works exclusively with Bitcoin. While it is not as useful when applied to short time frames, it can be instrumental when trying to predict when the next Bull Run will occur. Use it wisely and you will find a perfect opportunity to ride the next price surge!
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