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A New Market Metric Tries to Find the Best Time to Buy Bitcoin

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Following up on our previous overview of what three bitcoin market metrics showed last week, let’s take a look at a brand new indicator developed by the popular bitcoin analyst Willy Woo; the Bitcoin Difficulty Ribbon.

Source: iStock/9george

“The ribbon consists of simple moving averages on mining difficulty so we can easily see the rate of change in difficulty,” Woo tweeted recently, adding that when the ribbon compresses, or flips negative, these are the best time to buy in and get exposure to Bitcoin.

And here is the ribbon itself:
(The blue line is the price of bitcoin)

Source: charts.woobull.com

According to the indicator, the best buy opportunity occurred towards the end of last year, when the ribbon “flipped” shortly after the strong sell-off in November. Now, however, it seems that the ribbon has entered an expansion phase, meaning more and more miners are jumping on the bandwagon. (The Bitcoin mining difficulty increased almost 11% on Monday and is estimated to jump another 11% in 12 days, according to major Bitcoin mining pool BTC.com. Meanwhile, hashrate, or the computing power of the network, is at a record high now).

While understanding how to use this indicator is simple enough, the logic behind it is somewhat more complex.

What the indicator essentially tries to illustrate is that price bottoms often coincide with periods when large numbers of miners give up and stop mining Bitcoin. Miners giving up are indicated in the chart by the ribbon contracting, while an expanding ribbon means that more miners are joining in on the treasure hunt.

Woo explains this by saying that the “weakest” miners constantly need to sell off coins to cover their expenses and remain operational, putting downward pressure on prices. When these miners are no longer active, fewer coins are sold, and the market bottoms out.

At pixel time (11:24 UTC), bitcoin trades at c. USD 11,806 and is up by 1% in the past 24 hours, by 24% in the past week and by 6% in the past month. Earlier today, it even surpassed USD 12,200 before dropping almost 4% in an hour.