On-chain data shows that the Bitcoin Puell Multiple is currently forming a pattern that has previously signaled a bullish opportunity for the asset.
Bitcoin’s Puell Multiple Recently Plunged to Low Levels
As one analyst pointed out in a CryptoQuant Quicktake jobBTC could be showing an opportunity that only comes around once in a given bull cycle. The on-chain indicator we are interested in here is the “Puell Multiple”, which tracks the ratio of Bitcoin miners’ revenue to their 365-day moving average.
Miners earn their revenue from two sources, the block reward and transaction fees, but in the context of the Puell multiple, only the block reward, which accounts for the majority of mining revenue, is relevant.
The block reward here naturally refers to the BTC compensation that miners receive for solving blocks on the network. A key feature of the Bitcoin blockchain is that these rewards are distributed at a more or less fixed rate. Furthermore, their scale remains constant, with one exception, which will be mentioned shortly.
When the Puell Multiple value is above 1, it means that miners are currently earning more than the average of the past year. The higher the value exceeds this mark, the more motivated these chain validators are to sell and, therefore, the more the cryptocurrency could be considered overvalued.
On the other hand, an indicator below this mark implies that miners are currently earning less than usual, which could be a potential sign that mining is becoming unprofitable.
Now here is a chart that shows the trend of Bitcoin’s Puell multiple over the past decade:
The value of the metric appears to have been plunging in recent weeks | Source: CryptoQuant
As the chart above shows, Bitcoin’s Puell multiple was above the 2 mark earlier in the year, implying that miners were enjoying significantly higher than average revenues.
The reason behind this increase in revenue is the increase in the asset price. The USD price is the only variable tied to block rewards, so their value naturally increases when the price experiences an increase.
The chart shows that the indicator has seen a notable decline over the past two months, bringing its value down to 0.7. This suggests that miners are now in trouble.
The recent bearish momentum Price is a factor, of course, but most of the drop is rooted in one event: the Fourth HalvingAs mentioned earlier, there is one exception where block rewards change in BTC value, and that is the Halving event.
These events, which occur every four years, permanently halve block rewards, and the latest such event, the fourth in cryptocurrency history, occurred on April 20.
In the chart, the quant has indicated instances where the Puell multiple has exhibited this trend in the middle of previous bull cycles. It would appear that each of these drops in miner revenues has been followed by sharp increases in the asset price.
Based on this model, the analyst believes that it is likely that Bitcoin will eventually experience the start of a bullish rally during this third quarter of 2024.
BTC Price
Bitcoin has been trying to restart its recovery from its recent lows, but so far, the asset has failed to find much success as it has only recovered to $57,300.
Looks like the price of the coin has overall been moving sideways recently | Source: BTCUSD on TradingView
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com
