On the Bitcoin marketinvestors and traders use many indicators to build their strategy. Some are based on variations in the price of bitcoin, others on data from its blockchain. We then talk aboutindicators on chain. In this article we present the most useful ones to you. From miner activity to statistical models, here is our selection.
The activity of minors
THE minors of bitcoins are of paramount importance to the network. It is therefore interesting to study their activities in order to obtain indications on the evolution of the price. In fact, the latter are paid thanks to the bitcoins collected for each block and the transaction fees. There resale of their BTC therefore has a influence on the course. Here are some on-chain indicators to watch.
Inflow/Outflow Volume
THE volumes entering and leaving addresses of minors are interesting metrics to observe. More precisely, we will study the transactions of miners towards exchange platforms (Miners Flow 2 Exchanges):
- When the flows are studentsthe miners are preparing to sell : indicator bearish ;
- When the flows are weakminors preserve their corners: indicator bullish.
Of course, not all miners’ addresses are referenced by on-chain analysis sites. However, these metrics give an overall idea of miner sentiment.
Difficulty Ribbon
THE Difficulty Ribbon Or Difficulty Ribbon is obtained by calculating several moving averages of mining difficulty. The periodicity of the simple moving averages used are: 200 days, 128 days, 90 days, 60 days, 40 days, 25 days, 14 days. This indicator was proposed by the analyst Willy Woo. Historically, when the difficulty ribbon is tightensthis is a good point of purchase on Bitcoin.
There difficulty of mining of Bitcoin makes it possible to assess the impact of mining on the price of BTC. Indeed, miners must sell the bitcoins created to finance their activities. The more minors are economically fragileand the more they go sell a significant part of their corners. The smallest minors are sometimes forced to capitulate totally: this reduces the hashing power and therefore the difficulty of the network. During these periods, the ribbon compress. Only the most powerful miners remain, who sell less, which then leaves room for upward action in the price.
Periods of difficulty ribbon compression are typically observed during end of a bearish cycle. The selling pressure of miners is decreasing, and the price of BTC stabilizes. This period ofaccumulation then leaves room for a new bullish phase. This phenomenon is also observed during halvings (reduction of reward per block).
Hash Ribbon
This is another indicator based onmining activitycreated by Charles Edwards (trader). More precisely, the Hash Ribbon is obtained by calculating several moving averages of the hashing difficulty of the network. This ribbon allows you to identify the periods of capitulation of miners.
There Bitcoin network difficulty is adjusted every 2016 blocks (approximately two weeks) while the hash rate is calculated every day, depending on the number of blocks produced. One might think that the periodicity of the difficulty adjustment makes the previous indicator “lag” because of the two weeks of the G. However, miners’ capitulation periods are generally long (several weeks).
The Hash Ribbon is made up of 1 and 2 month simple moving averages of the network hash rate. The best entry points into the BTC market are usually right in the middle of periods of miner capitulation. Thanks to crossing moving averages, the Hash Ribbon helps to identify these periods, and therefore to identify the sill.
When the moving average 30 days cross the moving average 60 days speak high, the capitulation is generally complete. The market is starting to recover, and this is a great opportunity to get in.
Historically, the Hash Ribbon gives results impressive, as the inventor of the indicator demonstrates:
| Buy Point | Max Downdraw (%) | Max Gain to Peak(%) | Peak Used |
|---|---|---|---|
| Jan-19 | -7% | 283% | Jun-19 |
| Aug-16 | -3% | 3188% | Dec-18 |
| May-15 | -16% | 8068% | Dec-18 |
| Apr-15 | -15% | 8097% | Dec-18 |
| Jan-15 | -15% | 8436% | Dec-18 |
| Feb-13 | -3% | 5715% | Nov-13 |
| Jun-12 | -7% | 4165% | Apr-13 |
| May-12 | -5% | 5213% | Apr-13 |
| Dec-11 | -6% | 6519% | Apr-13 |
| Ave | -9% | 5520% |
As can be observed, the returns on investment are very high, while the drawdowns maximum are low (16% max). THE drawdowns are the price retracements observed during the purchase over the periods considered. THE Hash Ribbon is therefore one of the most useful on-chain indicators for medium-term investors in Bitcoin.
Final remarks on on-chain indicators
The on chain indicators presented above (based on theactivity of minors) are not magic formulas. Past performance does not guarantee future performance. However, they are very useful tools to use in correlation with other technical indicators. They are very interesting for refining your investment strategy and decision-making.