Based on CryptoQuant datanotes one observer that whenever the Bitcoin hash rate hits new highs, as it did in late January 2023, coin prices tend to pull back as the upside momentum wanes.
Extending this preview to current BTC rates, the analyst predicts that prices could rise above the current resistance level of $23,800 to $25,500 before moving below the immediate support lines to $20,000 or worse.
Hash rate spikes are sell signals?
According to his analysis, raising Bitcoin prices would encourage more users and mining companies to crank up their rigs, further increasing the hash rate. Based on his theory, the rising hash rate would be a harbinger of strong liquidations that could relax mining activity and lower prices.
On January 26, the Bitcoin hash rate is increased up to 305 EH/s, an all-time high. Hash rate is the total computing power connected to the Bitcoin network. At the current rate, a new level is likely to be recorded if BTC prices continue to rise.
While there appears to be a direct correlation between spot BTC price and hash rate, referring to on-chain data, the observer believes the opposite is true. He is convinced that peaking bitcoin hash rates can diverge from prices, which can affect coin valuations.
BTC just hit new ATH, and many may lead you to believe that this is a bullish sign, but I will show you that it always had the opposite effect. I have used all-time hash rates as bearish signals in 2022 with very good results. You can see all the new ATHs. Even if you go back to the 2021 ATHs on a live chart, you’ll see that all of this meant an imminent sell-off.
In particular, the analyst pointed to occasions in 2021 and 2022 where rising hash rates led to significant share price declines following solid rallies. In seven events, the average selloff was a price drop of 19.5%, with the deepest being 37%. Prior to this correction, he adds, the coin’s appreciation is trending towards a maximum gain of 11%. Based on current Bitcoin prices, this puts the coin above $25,000.
Bitcoin mining clusters are forming
Before prices rise, “clusters of intense Bitcoin mining activity” often form, as is currently the case. Due to the involvement of miners, the hash rate rises in rapid succession, registering an all-time high. However, the brisk mining activity and the expansion of the hash price led to strong sell-offs within nine trading days on average.
According to the current Bitcoin formation, the surge in BTC prices above $25,000 may precede a cool-off, potentially pushing the coin back to $20,000 or, worse, $14,500 from early February 2023.
Feature image from Canva, chart from TradingView