What is Puell Multiple and How is it Interpreted?
The Puell Multiple is an indicator that compares the value of daily revenues from Bitcoin mining in USD to its moving average over the last 365 days. Traders use this metric to understand market dynamics and assess cyclical movements, allowing them to compare short-term returns from mining activity with long-term trends.
Definition and Calculation Method:
Puell Multiple is calculated using the following formula to analyze the current state of Bitcoin mining revenues:
This formula helps us understand the extent to which daily incomes are in line with or deviate from the average annual income.
Miners’ Behavior and Market Impact:
Bitcoin miners are directly exposed to market price fluctuations as they have high operational costs such as electricity and equipment. Puell Multiple provides clues to price movements by comparing miners’ short-term income against yearly trends.
Market Cycles and Puell Multiples:
- Values of 4 and above: Market Overheating (Bearish Signal)
A Puell Multiple exceeding 4 could indicate that miners’ revenues significantly exceed operational costs and that the Bitcoin price is “overvalued”. This could increase the tendency for miners to realize their gains, creating selling pressure in the market. A price at these levels is often seen as a sign of a correction. - Values 0.5 and Below: Devaluation (Bullish Signal)
A Puell Multiple below 0.5 could indicate that mining revenues are not covering costs and many miners are forced to cease operations. In this case, Bitcoin prices may be considered undervalued and miners may be inclined to hold their coins rather than sell them. This can be considered a period of opportunity, which often signals a market recovery.
Conclusion:
Puell Multiple is a valuable indicator for understanding Bitcoin price cycles and predicting potential trend shifts. It offers traders a strategic perspective, especially by identifying when the price is overvalued or undervalued.
What Does the 22.11.2024 Puell Multiple Chart Show?
The voluminous rises in BTC over the past few days have pushed Bitcoin up to the $100,000 level. It is seen that the Puell Multiple, which has produced very strong signals in the past during this rise, has risen above its 365-day average.
If we try to interpret the price movements after the time periods when this signal occurred in the past:
In June 2012, we see that BTC experienced an increase of 249% after the Puell Multiple rose above the 365-day average.
In January 2013, after the same buy signal occurred in January 2013, BTC rose over 500%, and
in October 2013, it performed 442%.
Most recently, BTC experienced a bull cycle from $16,500 to $65,000 after a buy signal in December 2022.
Conclusion If we interpret
all these past buy signals together, it can be said that a strong bull cycle can be experienced on BTC during this period when a strong buy signal is formed.
In particular, exceeding the psychological resistance of $100,000 could strengthen this thesis and ensure that the rise continues with momentum.
Source: Cryptoquant
