Hash Ribbons, an indicator with a proven track record of spotting opportunistic entry points for bitcoin, issued a buy signal suggesting that now is the time to buy the peer-to-peer currency.
Knowing when is the best time to invest is the desire of many but the fulfillment of few. Indeed, investing strategies such as Dollar Cost Averaging (DCA) have emerged to take the guesswork out of the equation and allow for a more stress-free investing experience. Nevertheless, many are still looking for opportunities to make a large allocation that promises outsized returns. While there is no single indication of when such a moment has occurred, strategies do exist to help spot such periods – and, in the Bitcoin world, hash ribbons are one of them.
Hash Ribbons, publicly available on TradingView, is an indicator made up of two simple moving averages (SMA) of the bitcoin hash rate: the 30-day SMA and the 60-day SMA. A downward crossover of the short-term MA over the long-term MA marks the start of a period of capitulation, while an upward crossover marks its end. Buying bitcoin at the end of a period of miner capitulation often produces outsized returns for investors, as the worst is believed to be over and the market is beginning to recover.
“There’s a good chance the bottom is in,” said Charles Edwards, inventor of hash tapes and founder of Capriole Investments, a quantitative crypto fund whose goal is to outperform bitcoin. “Looking at Bitcoin, we have the strongest possible signal for a major accumulation zone: a hash ribbon buy, and the timing of that signal makes it even more valuable.”
The last signal to buy hash ribbons comes in the second half of this halving cycle – the four-year period between halvings. (Halving is the event by which the protocol “halves” the block reward.) Edwards explains that end-of-cycle hash ribbon signals have been “the most reliable and successful in the past. “. However, a purchase of hash tape does not mean that the price will increase instantly.
“It should be noted that a 15% drawdown on a hash tape signal would not be out of the ordinary,” Edwards added. “Timing funds is never easy. The primary goal for us as investors is to identify high probability regions of value and act on them whether or not they end up hitting the absolute bottom.
“We think we’re in one of those high-probability regions today,” he said.
In the previous Bitcoin bear market, after the 2017 high, the hash ribbons signaled a buying opportunity as BTC traded at around $3,600 on January 10, 2019. Over the next year, the Bitcoin price rose 127% to $8,200 after posting returns of 233% in the first six months.
Despite the stock’s evidenced past returns on hash ribbon buy signals, the current macro backdrop poses some challenges as a broader sentiment of risk aversion remains attached to global markets. But Edwards argues that there was a counter argument to acting on the indicator every time it emitted a signal.
“There have been six ‘live’ hash tape signals since the strategy went public three years ago,” he said. “Nearly all have had skepticism or good theoretical counter-arguments to suggest this time is different, but so far none of those counter-points have been valid.”
The truth is that returns are never guaranteed and investors themselves must decide if and when to buy bitcoin based on their individual terms. Also, as Edwards pointed out, the period of high global inflation the world is currently experiencing is “definitely” a good counterpoint to the signal from the hash ribbons.
“Such periods only occur about every half century,” he said. “So it’s hard to assess how Bitcoin will behave and how these Bitcoin-specific strategies will work. No doubt there will be an impact.