How do you distinguish between a dip and a crash here?
Last week's difficulty drop was only -0.74%. Prior to that, difficulty actually rose by +1.99%. That doesn't seem indicative of "capitulation" to me. We need an actual crash like Q4 last year for miners to start shutting down en masse.
I think you may be confusing the start of the capitulation with the end of the capitulation cycle. Minder shut off en masse usually at the end of the such a cycle.
Regarding the indicator, it is by default based on the 30 and 60 SMA's of hash rate. Therefore, as far as I understand with the coding:
- When the 30 initially crosses below the 60 (bearish) that creates the red area whereby the indicator signals the beginning miner capitulation (shown by the title "capitulation").
- When the 30 is rising back towards the 60, we see the red area shrink (as shown with the green dots), as capitulation is losing momentum.
- When the 30 is again trending downwards away from the 60 (that it previously crossed), we then see the transparent dots signalling continued "miner capitulation".
- When the 30 crosses back above the 60, indicating an exhaustion of miner capitulation, we then receive the "Buy Signal" (as shown above in blue)
Hope that helps things for you sufficiently. Consequently this indicator measure mining difficulty decreasing, but is still based on hash rate nonetheless.
Bare in mind this is only one indicator, that I wouldn't rely on to trade on exclusively. But it appears to be a well back-tested indicator none the less.