Main Insights
- Bitcoin’s Yardstick indicates that the current cycle is relatively muted.
- The market-to-thermocap ratio has not entered overbought conditions.
- The Hash Ribbon indicator shows early signs of miner capitulation.
Miners are pivotal in influencing market cycles. Their profitability can influence their decision-making, which often heralds significant shifts in the market cycle.
Historically, miner capitulation has corresponded with market bottoms, while periods of high profitability tend to precede market peaks.
As Bitcoin’s current cycle unfolds, various miner-focused on-chain indicators are revealing curious signs.
How do these indicators stack up against previous cycles, and what might they forecast for the future?
Bitcoin Yardstick
The Bitcoin Yardstick is a valuable metric for evaluating Bitcoin’s worth. It resembles the Price-to-Earnings ratio in traditional stocks but relies on the ratio of energy expenditure rather than stock earnings, calculated by dividing the market cap by the hash rate and normalizing the result.
Historically, instances when the Yardstick (red) exceeded three standard deviations above its average (blue) have aligned with market peaks.
While earlier Bitcoin cycles featured several months where this phenomenon occurred before a bear market, the current cycle has seen less than a month of trading days where the indicator hit this threshold.
This indicates that during the current cycle, Bitcoin’s valuation is significantly closer to its production costs compared to previous cycles.
Market Cap to Thermocap Ratio
This metric is another important indicator for miners. It assesses the earnings of Bitcoin miners relative to the circulating Bitcoin value. This is generated by multiplying miner fees and transaction rewards by the BTC price.
We then juxtapose it with Bitcoin’s market capitalization to evaluate if BTC is undervalued or overvalued. A heightened ratio suggests that Bitcoin’s current valuation surpasses its fair value. Traditionally, values exceeding 0.0000040 are deemed overbought.
This indicator reached overbought territory during the 2017 cycle but did not do so in 2021, instead showing a bearish divergence before a decline. The current cycle has not exhibited either phenomenon.
The only concerning aspect noted from this indicator is that a declining resistance trend line drawn from the 2017 peak has reached the current readings, potentially indicating a market top.
Hash Ribbon
The Hash Ribbon is the final indicator examined and it directly assesses the balance between mining costs and rewards. It indicates that miners tend to capitulate when their expenses exceed their revenue.
This indicator is created using both short- and long-term moving averages (MA) of the hash rate, where a short-term cross above the long-term MA denotes liquidation, as indicated in red on the chart.
Historically, these liquidation periods have typically led to market recoveries, with the exception of July 2022 (marked by a black circle).
Moreover, the Hash Ribbon has never displayed red signals near market cycle peaks; although it nearly did so in July 2021 (highlighted by a red circle), the subsequent upward movement resulted in a new all-time high.
Therefore, the Hash Ribbon presents a bullish outlook for Bitcoin miners, indicating that the cycle is not yet finished and that a positive market movement is anticipated soon.
Bitcoin Miners Remain Robust
Unlike many other on-chain indicators for Bitcoin, miner-related metrics suggest ample opportunity for growth within the current cycle.
The Hash Ribbon indicator provides an optimistic viewpoint, indicating a potential increase is imminent.
Disclaimer:
This article’s content is for informational purposes only and should not be interpreted as financial advice. We make no guarantees regarding the completeness, reliability, or accuracy of this information. All investments carry risks, and past performance does not ensure future outcomes. We advise consulting a financial advisor before making any investment decisions.
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