One is called the difficulty ribbon, and it has just broken out of the green buy zone for the first time since March in terms of compression. The metric was reported by analytics provider Glassnode, which added that historically, these had been periods characterized by a positive momentum indicating significant price increases.
#Bitcoin Difficulty Ribbon Compression is trending up and broke out of the green buy zone for the first time since March.
Historically, these have been periods characterized by a positive momentum indicating significant $BTC price increases.
— glassnode (@glassnode) September 28, 2020
Historical Bitcoin Buy Signal
The Bitcoin difficulty ribbon was created by chartist Willy Woo. It consists of simple moving averages of network difficulty enabling the rate of change of difficulty to be easily seen. Periods of high ribbon compression, such as the current situation, have been historically good buying opportunities.
There have been several significant price increases over Bitcoin’s lifespan that followed this ribbon compression breaking out of the green zone. The most recent was around April 2019 when BTC prices surged from below $5k to top out over $13k just three months later.
It was also observed that there had been a massive divergence in difficulty ribbon compression and Bitcoin price over the past six years. However, the chart has used a logarithmic price chart, which may have caused that anomaly.
Bitcoin’s hash ribbon is a similar metric, and CryptoPotato reported that it was flashing buy signals back in July. In the five weeks that followed, BTC price surged 34% to make its 2020 high.
BTC Price Action Update
Looking at the shorter term, Bitcoin’s price chart has just printed another ‘Bart Simpson’ pattern with a sharp 2.3% decline in just over an hour, wiping Monday’s gains.
Prices had recovered to $10,725 at the time of writing, and sentiment appears to be bullish for BTC, according to a recent poll by analyst and trader Josh Rager.
What kind of prices do you think we see with Bitcoin and the stock market this week?
— Josh Rager 📈 (@Josh_Rager) September 28, 2020
Bitcoin is currently trading right on the 50-day moving average, which is acting as resistance at the moment. The next step above this is a break above $11k, while on the low side, there is strong support at the $10k level. Analyst ‘CryptoHamster’ added:
“After the breakout the resistance line became support. Now it is getting tested. If it holds, it would be a very nice sign. But it has to hold, otherwise the whole growth is just a short squeeze.”
Short term charts suggest price could go either way, but longer-term on-chain analytics, such as the difficulty ribbon, are more bullish.