To capture Bitcoin’s bottom, more analysis is needed than just its price. One of the most reliable indicators of historical market bottoms is miner data. Often considered one of the most resilient players in the cryptocurrency ecosystem, miners only surrender when Bitcoin becomes too expensive to mine.
Hash Ribbon is a unique metric used to determine whether the market is currently in a bearish or bullish phase. This indicator calculates based on the 30-day and 60-day simple moving averages (SMA) of the Bitcoin hashrate. The 30-day SMA falling below the 60-day indicates the beginning of a bear market and miners are starting to capitulate.
Observing the data, the market was in captivity mode for nearly 60 days in a row. Miner capitulation will worsen when the 30-day SMA crosses above the 60-day SMA. However, the difference between the moving averages remains the same for several days making it difficult to determine when a trend reversal might be seen.
However, analysis of miner balances shows that the worst is over and miners are starting to recover. Miner balance is the total supply held at addresses belonging to miners to determine if they are selling off assets. According to data from Glassnode, this metric recovers from the June low and is the highest since October 2017 (highlighted in red).
With balances recovering, miner outflows from exchanges quickly surpassed exchange inflows (marked in black). As such, more people have withdrawn BTC from exchanges than deposited it for sale on the market.
The difficulty adjustment also suggests that Bitcoin may have bottomed out. Determined by the current estimated number of hashes required to mine a block, the difficulty adjustment increased for the first time since June (+1.7%). The upward move suggests that Bitcoin mining difficulty may have bottomed out in early August. If Bitcoin can continue to hold the price level alongside the $23,000 resistance, it is unlikely that difficulty will return to that low any time soon. .
Finally, another reliable indicator of market bottoms also seems to be flashing red. The Puell Multiple is used to determine the probability of mining by calculating the daily coin release rate in USD and the 365-day moving average of the daily coin release value. When the Puell Multiple is low, it shows that the profitability of miners is low compared to the annual average. When this index is high, miners’ profits are high and incentivize them to liquidate their stock of assets.
The Puell Multiple has signaled previous cycle bottoms with a good degree of accuracy – signaling bottoms in November 2011, January 2015, November 2018 and May 2020. The data shows that the Puell Multiple has left the green zone for the first time since June and is climbing slowly, steadily. While the indicator has gone in and out of the green zone in previous market cycles, the outlook remains positive.