On-chain data shows that bitcoin’s Puell Multiple is currently forming a pattern that had previously signaled a bullish opportunity for the asset.
bitcoin's Puell multiple has recently fallen to low levels
As noted by one analyst in a CryptoQuant Quicktake mailbtc may be showing an opportunity that only comes along once in a given bull cycle. The on-chain indicator of interest here is the “Puell Multiple,” which tracks the relationship between bitcoin miner revenue and the 365-day moving average of the same.
Miners earn their income through two sources, the block reward and the transaction fee, 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 given at a more or less fixed rate. Moreover, the scale of the rewards remains constant, with one exception, which will be mentioned shortly.
When the Puell multiple value is greater than 1, it means that miners are earning more than the average for the past year at this time. The higher the value of the metric is above this mark, the more motivation these on-chain validators have to sell, and therefore, the more the coin could be considered overvalued.
On the other hand, the fact that the indicator is 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 showing the trend of bitcoin's Puell multiple over the past decade:
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The value of the metric appears to have been plunging in recent weeks | Source: CryptoQuant
As shown in the chart above, bitcoin’s Puell Multiple had been above the 2 mark at the beginning of the year, implying that miners were enjoying significantly higher than average revenues.
The reason behind this increase in revenue was the surge in the asset price. The dollar price is the only variable associated with block rewards, so their value naturally increases when the price experiences an increase.
The chart shows that the indicator has seen a noticeable drop over the past few months, bringing its value down to 0.7. This suggests that miners are in trouble.
The recent bearish momentum in price is a factor, of course, but most of the drop is rooted in one event: the fourth Halving. As mentioned above, 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 cut block rewards in half, and the latest such event, the fourth in the cryptocurrency's history, occurred on April 20.
In the chart, the quantitative analyst has marked the instances where the Puell multiple has shown this trend amid previous bull cycles. It would appear that each of these declines in mining companies' revenues was followed by sharp increases in the asset price.
Based on this pattern, the analyst believes that bitcoin is likely to end up seeing the start of a bullish rally during this third quarter of 2024.
btc Price
bitcoin has been attempting to start a recovery from its recent lows, but so far, the asset has not been able to find much success as it has only recovered as high as $57,300.
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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
