• The Hash Ribbon indicator flashes a buy signal for Bitcoin for the second time in 2020
  • The Hash Ribbon indicator identifies the bottom price of Bitcoin at the time when miners capitulate
  • This indicator does not have a sell signal

At the current Bitcoin price of $9,250, the Hash Ribbon indicator has flashed a "buy" signal for Bitcoin, indicating that a price rally could happen anytime soon. 

The Hash Ribbon indicator normally gets triggered before a major price rally. The signal last flashed a "buy" signal on April 25. At the time, Bitcoin rallied from $3,900 to $7,500 in 45 days. In 2019, the indicator flashed the signal in January and a person could have gained 285% if they sold in June of the same year, when Bitcoin peaked at $13,900.

The Hash Ribbon does not have a sell signal.

The signal, which often only gets triggered once a year, looks at Bitcoin's hash rate and mining difficulty as key metrics to find the appropriate price to buy Bitcoin. Its creator, analyst and investor Charles Edwards said Hash Ribbon can be used to identify bottoms for purchasing Bitcoin by using the one-month and two-month simple moving average (SM) of Bitcoin’s hash rate. 

The bottom is usually that period when miners capitulate because they find it too expensive to run a mining operation relative to the profits they get from the price of Bitcoin.

For 2020, the Hash Ribbon flashed a "buy" signal twice because it is the year of the halving, which happened on May 11. At the time, the cost of mining was still unclear and the price of Bitcoin was still uncertain. Furthermore, the March 12 crash of the global markets due to the coronavirus has also sent mixed sentiments that possibly affected Bitcoin’s volatility and price.

It is also possible that the Hash Ribbon signal gets triggered again after Bitcoin experienced a record high difficulty adjustment. While the hash rate is an inexact metric, it provides an idea of how much computing power is spent in mining Bitcoins. Increased difficulty represents increased competition to mine Bitcoins, and any difficulty increase is usually followed by price action sometime later.

However, while the Hash Ribbon is a bullish signal, sentiments are divided in the short term as some analysts think a pullback could still likely happen. A Twitter user, who goes by the name "Super Algo", argued that there could still be a five percent or more drawdown before any rise, so it’s better to wait for the weekly Hash Ribbon signal.

Edwards’ counterpoint is that the signal he created uses "daily data" regardless of the time frame used. “So by setting your time frame to weekly, the only thing you are achieving is a late signal,” the analyst said in a separate thread.

In this file photo taken on March 19, 2018 two technicians inspect bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec In this file photo taken on March 19, 2018 two technicians inspect bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec Photo: AFP / Lars Hagberg