On-chain data shows that the Bitcoin Puell Multiple has dipped into “undervalued” territory for the first time in over a year.
Bitcoin Puell Multiple recently observed a fall
As an analyst in a CryptoQuant Quicktake job pointed out, the BTC Puell Multiple has fallen recently. THE Puell Multiple refers to an on-chain indicator that tracks the ratio of Bitcoin miners’ daily revenue to the 365-day moving average (MA).
Miners earn their income in two ways: block rewards and transaction fees. The first is what they receive as compensation for adding a block to the network, while the second is a payment they receive for all individual transactions that are part of the block.
However, in the context of the Puell Multiple, only the block reward is included in the miners’ income. Block rewards almost always remain fixed in terms of BTC value, so the only variable tied to them is the USD value of the rewards.
As such, the indicator measures revenue in USD. There is therefore a link between the price of the cryptocurrency (which guides the value of the block reward) and the Puell multiple.
When the value of this metric is greater than 1, it means that miners have earned more than the average over the past year. In such a condition, the price of the asset may be considered overvalued.
On the other hand, the indicator is below this threshold, which suggests that miners are currently earning less than usual. Naturally, the coin may be considered undervalued when this happens.
Now here is a chart that shows the trend of the 7-day MA Bitcoin Puell multiple over the past few years:
The value of the metric appears to have taken a plunge in recent days | Source: CryptoQuant
The chart shows that the 7-day MA of Bitcoin Puell Multiple was at relatively high levels earlier when the rally to the new all-time high occurred.
However, recently the value of the indicator has fallen sharply. However, at the same time, the price of the cryptocurrency has consolidated sideways.
So what changed miners’ income if the price didn’t fall? As mentioned earlier, block rewards almost always remain constant. Almost. The only exception is the Reduce by half an event that occurs approximately every four years.
During this event, the asset’s block rewards are permanently halved. The last halving took place last month, so the Puell multiple saw a very significant drop.
With this pullback, the indicator’s 7-day MA is now below 1. “Investors may interpret the decline in the Puell multiple as a sign that the market is adapting to a new phase of scarcity, potentially preparing for a rally,” explains the quant.
BTC Price
At the time of writing, Bitcoin is trading at around $67,800, up 5% over the past week.
Looks like the price of the asset has plunged over the past day | Source: BTCUSD on TradingView
Featured image by Maxim Hopman on Unsplash.com, CryptoQuant.com, chart from TradingView.com
