On-chain metrics for Bitcoin are improving as prices begin to consolidate; this could lead to further buy signals as observed by industry analysts.
The decline in Bitcoin’s hash rate over the past few weeks has been seasonal, coinciding with the end of the rainy season in China where most of the mining occurs. As reported by CoinGape, Chinese miners powered down their rigs to relocate in order to source cheaper energy once the abundance of hydroelectric power dried up.
This caused a 38% decline in hash rates as there were fewer computers competing for the next block. Now that the relocation appears to have occurred, mining hardware is powering up again and hash rates are returning to their previous highs.
Bitcoin hashrate rebounds after 2nd largest negative difficulty adjustment
— unfolded. (@cryptounfolded) November 10, 2020
According to bitinfocharts.com, the hash rate has just hit 138 EH/s which is an increase of 40% from the low it hit late last month.
Hash Ribbon Buy Signal
Capriole Investments founder and on-chain analyst, Charles Edwards, noted that the miner move takes around two weeks and another Hash Ribbon buy signal is expected this month.
Looks like we will get another Hash Ribbon Buy in November.
Hash Rates are recovering perfectly in line with the expected post wet season energy transition in China.
— Charles Edwards (@caprioleio) November 10, 2020
Hash rate provide a leading indicator over difficulty which can be used to identifying capitulation periods. However, simple moving averages of Bitcoin’s hash rate can be combined to identify market bottoms, miner capitulation, and good times to buy BTC.
When the one month SMA of hash rate crosses over the two month SMA, the worst of the miner capitulation is typically over, and the recovery has begun leading to good buying zones. Historically, buying at these signals has led to very good returns for Bitcoin.
Additionally, Bitcoin’s mempool shrank to its smallest size since mid-October this week after the hash power recovered. The mempool could be viewed as a type of ‘waiting room’ for transactions so the decrease in size leads to a reduction in competition among fresh transactions and lower transaction fees.
Transaction fees peaked at over $13 at the end of October when more than 140,000 transactions were pending in the mempool. That has all now been cleared according to mempool.observer.
Following the massive 16% difficulty adjustment on November 3, it is expected to increase when the network automatically makes the next correction.
Bitcoin Price Outlook
On the short term time frame, Bitcoin appears to be consolidating around the mid-$15k price level. This could lead to another leg up if the monthly close for November could close above its previous high, as noted by trader and analyst Josh Rager.
Every time Bitcoin has closed above the previous monthly all-time high – a 700% to 1000% uptrend has followed
November could be the first monthly close that we see breaking the previous high and historically that's been a very bullish sign for the crypto market pic.twitter.com/5SBTtE600U
— Josh Rager 📈 (@Josh_Rager) November 10, 2020
At the time of press, BTC was trading flat over the past 24 hours at just below $15,400.