One quant pointed out that a popular on-chain indicator for Bitcoin is giving the asset the green light to experience bullish price action.
Bitcoin Puell Multiple recently observed a fall
As an analyst explains in a CryptoQuant Quicktake job, the Bitcoin Puell Multiple is currently in the “safe buy zone”. The “Puell Multiple” here refers to an on-chain metric that tracks the ratio of BTC miners’ daily revenue to their 365-day moving average (MA).
Revenue here refers to the amount these chain validators earn from mining the network by solving blocks. The rewards that miners earn remain constant in BTC value and are awarded at a constant rate.
Thus, the only variable in this group’s revenue is the USD conversion rate of the cryptocurrency. Thus, miners’ income increases when the price increases and decreases when it falls.
At high prices, miners may have strong incentives to sell, which adds to the market value. selling pressure. When the Puell multiple has a high value (i.e. miners earn significantly more than the average for the past year), the price of the asset is assumed to be overvalued.
Likewise, cryptocurrency may be considered undervalued when miners earn less than the norm, as they might decide to hold on to their mined BTC until better market conditions are reached.
Now here is a chart that shows the trend of the Bitcoin Puell multiple over the entire history of the coin:
The value of the metric seems to have taken a plunge in recent days | Source: CryptoQuant
As the chart above shows, the Bitcoin Puell Multiple has been rising alongside the rally Bitcoin has witnessed in 2023 and the first few months of this year.
However, the value of the indicator has suddenly dropped recently. The indicator is now 0.8, suggesting that miners earn less than the annual average.
However, the price of Bitcoin has not seen a drop of a similar magnitude, so why did the indicator plunge? As mentioned earlier, BTC block rewards normally remain constant, with one exception.
Special events called Halvings, which occur approximately every four years, are the only cases where the value of mining rewards changes. More precisely, they are permanently reduced by half during these events.
It should be noted that these changes only occur at the time of the Halvings, while they remain constant for the entire four-year period between these events.
The latest halving, which happens to be the fourth the asset has seen, occurred earlier in the month, so the Puell multiple has cooled into an area that could be bullish for the active.
“But hey, remember this: in 2012, 2016 and 2019, every time the ratio reached around the same numbers, the price always took a breather before returning to bullish territory,” notes the quant.
BTC Price
Bitcoin has experienced another recovery failure. Its price returned to $61,300 after rebounding above $64,000 yesterday.
Looks like the price of the coin has plunged over the past day | Source: BTCUSD on TradingView
Featured image by Dmytro Demidko on Unsplash.com, CryptoQuant.com, chart from TradingView.com