60% of Bitcoin miners may temporarily "surrender"? What impact will this have on the market?

Original title: "Hash rate changes hide the mystery of BTC. The opportunity to buy at the bottom has really come this time"
Author: Simplified Coin Market

Cryptocurrency analyst Charles Edwards recently tweeted that the recent changes in Bitcoin hash rate data suggest that miners are facing another "destiny decision". Whether to continue to hold out and bear losses in the hope of not missing out on the next bull market that may soon come, or to "admit defeat" and temporarily exit the market, miners need to make their own choices as soon as possible. According to Charles's estimate, up to 60% of miners may say goodbye to the market in the short term.

In the tweet, Charles posted the real-time performance of the technical indicator Hash Ribbons that he has been following. Charles pointed out that the performance of the Hash Ribbons indicator in recent times is extremely rare. Because the indicator value has been running sideways below 0.5% for more than a week, but has not fallen below the 0 axis, this shows that miners have been struggling for a while and have been reluctant to make a choice whether to "surrender".

This indicator shows the trend of Bitcoin hash rate by quantifying the relative growth rate of hash rate. The specific value is the difference between the average value of Bitcoin hash rate in the past month and the average value of the past two months divided by the average value of one month. Every time the data shown in the figure below crosses the 0 axis, it means that the 1-month moving average crosses the 2-month moving average. The 1-month moving average of the hash rate falls below the 2-month moving average, which means that the Bitcoin hash rate is in a phased downward trend in the recent period. At the same time, the appearance of this negative value also means that miners are fleeing the market.

The cases where the hash rate "relative growth rate" was less than 2% for a week in a row are marked with red dots in the figure below.

Although the probability of miners leaving the market after the recent warning signals is not high, if we count all similar scenarios since the birth of Bitcoin, there is actually more than a 60% chance that miners will flee the market. Perhaps the sample size is not large enough, after all, Bitcoin has only been around for ten years, but this does not mean that this market performance has no reference value.

1 What does it mean for the market?

Maybe this sounds terrible, but for investors, it may actually be an excellent opportunity to buy at the bottom.

In a blog post titled "Bitcoin Price and Hash Rate" published on Medium in early August this year, Charles Edwards pointed out that the seemingly unrelated Bitcoin price and hash rate are actually inextricably linked. Looking back at historical performance, it can be found that shortly after the concentrated exit of miners, the market often ushered in a new stage of Bitcoin lows (as shown in the figure below).

Of course, this investment strategy gives a very low frequency of buy signals. In the eleven years since the birth of Bitcoin, it has only given nine buy signals so far, and the last similar signal can be traced back to half a year ago. Therefore, every opportunity should be cherished.

2 So how to seize the opportunity?

Taking the market performance after several "miner surrender" situations in history as an example, if you buy Bitcoin as soon as the Hash Ribbons indicator falls below the 0 axis each time, the return that this investment can ultimately provide and the risks to be borne are shown in the following figure:

Simply put, buying Bitcoin immediately after the first nine "miner surrender" signals given by the market in history can bring an average return of more than 5,000% (50 times) to the peak of the next market cycle, while the average holding period is less than three years. From the perspective of maximum drawdown performance, although the largest drawdown among these investments reached 42%, the average drawdown was only about 11%. Compared with the average return of 50 times, this drawdown level is actually not difficult to accept.

However, we can still further optimize this strategy. If we wait for the "miner capitulation" to occur and the "relative growth rate" of the hash rate returns to a positive value, that is, after the market comes out of the "collapse" situation, then buy Bitcoin, the results will change as follows:

The most obvious point is that the extreme situation of 42% retracement was significantly corrected. After adopting this correction strategy, the maximum retracement of the same wave of investment dropped sharply to 15%. The average maximum retracement of the overall nine opportunities dropped to 9%, while the average return did not drop, but was further improved.

It should be noted that the above investment return rate is only calculated up to the actual performance of the first market cycle peak after the buy signal appears. However, if in the asset allocation process, not only short-term and medium-term positions are arranged after the buy signal appears, but also long-term positions are arranged, then the overall investment return rate will be further improved.

It can be seen that as the Hash Ribbons indicator is once again infinitely close to the zero axis, the "bottom-picking opportunity" of Bitcoin may really be not far away from us this time.

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