BTC Miner Behavior as a Lens to Bitcoin Market Cycles

Key Takeaways

• Bitcoin (BTC) miner indicators can be used to determine market cycle tops.
• The Bitcoin market cap is increasing faster than the Thermocap but is not overbought yet.
• The Hash Ribbon indicator is recovering after showing miner capitulation for nearly three months.

Miners are key drivers of Bitcoin market cycles. Their behavior often signals approaching market cycle highs and lows. Historically, miner capitulation has aligned with market bottoms.

In this article, we will analyze two on-chain indicators that illustrate miner behavior and compare the readings to those near the top of previous BTC cycles.

Market Cap to Thermocap Ratio

The first miner indicator we will analyze is the market cap to Thermocap Ratio. The market cap represents the total value of all coins in circulation, while the Thermocap is the cumulative value of all coins paid to miners.

The indicator is created  by taking miner rewards and fees from each transaction and multiplying them by the price of BTC at the time of issuance.

Simply put, it measures total outflows to miners, representing their earnings, or “salaries”.

We can determine if BTC is under or over-valued by comparing the market cap and Thermocap ratio.

A higher ratio indicates overvaluation since it shows a disparity between Bitcoin’s valuation and the rewards of its miners, who maintain its security.

Market Cap to ThermoCap Ratio | Credit: GlassnodeGlassnode puts this level at 0.000004. The chart shows that the 2013 and 2018 Bitcoin market cycle tops both reached this level.

However, the 2021 one didn’t, even though it generated a bearish divergence. This occurrence is virtually identical to MVRV, another on-chain indicator used to determine market cycle tops and bottoms.

The current Market Cap to Thermocap ratio is 0.000010, way below that of every previous high. The current reading is way lower even when drawing a descending resistance trend line connecting the previous highs.

So, the first indicator suggests there is further room to grow until BTC reaches its top.

Hash Ribbons Begin Recovery

The second miner indicator is the Hash Ribbon. The indicator assumes Bitcoin bottoms when miners capitulate. This occurs when BTC becomes unprofitable to mine because of the difference between mining costs and rewards.

This is visualized by plotting 30- and 60-day moving averages (MA) of the hash rate. Capitulation (red) starts once the 30-day MA crosses below the 60-day one.

This means the short-term hash rate has fallen faster than the long-term one. It happens when miners turn off their machines because of unprofitability.

Then, an increase of the same MA above the 60-day one marks the start of the recovery.

Historically, periods, when the Hash Ribbon recovers after capitulation (red to white), have been the most profitable.

This nearly three-month period of capitulation was the second longest after that of April-August 2021 (red circle). At the time, Bitcoin created one more high before starting a long-term correction.

This prediction aligns with that of the NUPL, whose reading is also eerily similar to that of April 2021.

So, both on-chain miner indicators suggest the price of Bitcoin has at least one more high to go before it finishes the current market cycle.

These also align with the Bitcoin pi cycle top indicator , which perfectly predicted the two previous cycles.

About the Author

Valdrin Tahiri

Valdrin discovered cryptocurrencies while getting his MSc in Financial Markets from the Barcelona School of Economics in 2017. He has been an avid investor and trader since. Valdrin has written for several cryptocurrency media companies such as BeInCrypto and CoinGape.

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