A quant has noted that a popular on-chain indicator for bitcoin gives the asset the green light to experience bullish price action.
bitcoin Puell Multiple Has Observed a Drop Recently
As explained by an analyst at CryptoQuant Quicktake mail, bitcoin Puell Multiple is currently in the “safe to buy zone.” The “Puell Multiple” here refers to an on-chain metric that tracks the relationship between the daily revenue of btc miners and their 365-day moving average (MA).
Income here refers to the amount these chain validators earn by mining on the network by solving blocks. The rewards miners earn remain constant in btc value and are awarded at a constant rate.
Therefore, the only variable in this group's income is the cryptocurrency's USD conversion rate. As such, miners' income increases when the price increases and decreases when it decreases.
At high prices, miners may have a strong reason to sell, which increases market selling pressure. When the Puell Multiple has a high value (i.e. miners earn significantly more than last year's average), the price of the asset is assumed to be overvalued.
Similarly, cryptocurrencies may be considered undervalued when miners earn less than normal, as they could decide to hold on to their mined btc until better market conditions are achieved.
Now, here is a chart showing the trend of the bitcoin Puell Multiple throughout the entire history of the coin:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/04/Bitcoin-metric-gives-bulls-green-light-Quant-explains.png" alt="bitcoin Multiple Puell” width=”1280″ height=”720″ data-recalc-dims=”1″/>
The value of the metric seems to have taken a plunge in recent days | Source: CryptoQuant
As shown in the chart above, the bitcoin Puell Multiple had been rising alongside the rally that bitcoin had witnessed in 2023 and the first few months of this year.
However, the value of the indicator has suddenly plummeted recently. The metric is now at 0.8, suggesting that miners are earning less than the annual average.
However, bitcoin price has not experienced any similar scale decline, so why has the indicator plummeted? As mentioned above, btc block rewards typically remain constant, but there is one exception.
Special events called Halvings, which occur approximately every four years, are the only instances where mining rewards change in value. More specifically, they are permanently halved during these events.
It should be noted that these changes come into effect only at the time of the halvings, while they remain constant throughout the four-year period between these events.
The latest halving, which happens to be the fourth the asset has seen, occurred at the beginning of the month, so the Puell Multiple has cooled down to an area that may be bullish for the asset.
“But hey, remember this: in 2012, 2016 and 2019, every time the ratio reached approximately the same figures, the price always took a breather before jumping back into bullish territory,” notes the quant.
btc Price
bitcoin has seen another failed recovery. Its price has returned to $61,300 after recovering above $64,000 yesterday.
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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, TradingView.com chart
