Bitcoin (BTC) Miners Give Hope That Market Cycle Has Not Ended

Key Takeaways

• Bitcoin’s Yardstick shows that the current cycle has been subdued.
• The market-to-thermocap ratio has not reached overbought territory.
• The Hash Ribbon indicator suggests miners have started to capitulate.

Bitcoin miners play a critical role in shaping market cycles. Their profitability often dictates their actions, which can signal key turning points in the cycle.

Historically, periods when miners capitulate lead to bottoms, while extreme profitability leads to market cycle tops.

With Bitcoin’s current cycle unfolding, several miner-related on-chain indicators are flashing interesting signals.

How do they compare to past cycles, and what could they mean for what’s ahead?

Bitcoin Yardstick

The Bitcoin Yardstick is a metric that helps asses Bitcoin’s value. It has similarities to the Price-to-Earnings ratio in stocks but uses the ratio of energy work done instead of stock earnings. It is created by dividing the market capitalization by the hash rate and normalizing it.

Historically, periods when the Yardstick (red) was three standard deviations above its mean (blue) have coincided with market cycle tops.

While both previous Bitcoin cycles have had several months of such occurrences before the bear market started, the current one has been devoid of them. Rather, there has been less than one month of trading days when the on-chain indicator was three standard deviations above its mean.

This suggests that in the current cycle, Bitcoin’s value was much closer to its production cost than in the previous cycles.

Market Cap to Thermocap Ratio

The market cap to thermocap Ratio is another miner indicator. It compares how much Bitcoin miners are paid to the value of the BTC in circulation. The indicator is created by multiplying the miner fees and rewards from each transaction by the BTC price.

Then, we compare with Bitcoin’s market cap to see if BTC is under or overvalued. A high ratio means that Bitcoin’s actual value is higher than its fair value. Historically, values above 0.0000040 are considered overbought.

The on-chain indicator reached this territory in the 2017 market cycle but did not do so in 2021. Rather, it created a bearish divergence before falling. Neither has happened in the current market cycle.

The only bearish sign in the on-chain indicator is that a descending resistance trend line drawn from the 2017 high has reached the current reading, which could be seen a signal for the top.

Hash Ribbon

The final indicator analyzed is the Hash Ribbon, which directly compares mining costs and rewards. It suggests that Bitcoin miners capitulate when their costs are higher than their rewards.

The hash rate’s short- and long-term moving averages (MA) create the Hash Ribbon indicator. A short-term cross above the long-term MA marks liquidation, illustrated by red in the chart.

Historically, these periods have almost always led to a market recovery. The only exception was in July 2022 (black circle).

Additionally, the indicator has never flashed red near market cycle tops. While it almost did so in July 2021 (red circle), the ensuing upward movement led to a new all-time high.

Thus, the Hash Ribbon is the bullish Bitcoin miner indicator, suggesting the cycle is not over yet and an upward movement will follow soon.

Bitcoin Miners Still Healthy

Unlike other on-chain Bitcoin indicators, miner indicators suggest there is still more room to grow in the current cycle.

The Hash Ribbon indicator gives a bullish outlook, suggesting an increase is just around the corner.