Bitcoin could be poised for outsized gains if recent technical signals are to be believed.
Investors have been searching for a bottom to bitcoin since the cryptocurrency lost more than 60% of its value from the all-time high of nearly $69,000 it hit in November. Nearly $2 trillion has been wiped off the entire crypto market in recent months.
A measure of activity of bitcoin miners could give investors a clue as to where the digital currency is headed next.
Miners validate transactions on the bitcoin network using highly-specialized and power-intensive computers to solve complex mathematical puzzles. They are rewarded in bitcoin for their efforts. As more bitcoin is mined, solving these puzzles becomes more difficult.
During market slumps, a depressed bitcoin price can make it unprofitable for many miners to continue operations. They then sell some bitcoin to keep afloat. But they also turn off their mining rigs to save money.
That has happened in the latest market slump and can be demonstrated by “hash rate,” a measure of computational power used to mine bitcoin. Since mid-May, when the market really started to sell-off, the 30-day average hash rate (a monthly average value) fell more than 7% and at one point saw a 10% dip. That signaled that miners were turning off their machines.
Hash rate, studied in various ways, is used by crypto investors to try to figure out when the market might bottom, because capitulation and a shakeout of the miners is often associated with the late stage of a bitcoin cycle.
“Historically speaking, capitulation in the mining market has tended to correspond strongly with overall market bottoms,” Matthew Kimmell, digital asset analyst at CoinShares, told CNBC via email.