Categories
General

Bitcoin in a historically attractive zone

Bitcoin is a cryptocurrency that fluctuates in value. We have seen dramatic changes in the last 12 months, from 10,200 in mid-February to 12-month lows below $4,000 last week. Such a drop unfortunately makes it hard to believe in a huge really before the May 2020 mining reward being cut by 50%. 

However, with the price reduction there is hope in sight. There is a key indicator called the “Puell Multiple” that is important and worth paying attention to. This Multiple looks at the supply side of Bitcoin’s economy, which means that the Multiple loos at bitcoin miners and their revenue.

The Puell Multiple is calculated by dividing the daily issuance value of Bitcoins in USD by the 365-day moving average of daily issuance value.

The important part for our purposes, Coinmarket, and Bitway is that the Multiple explores market cycles from a mining revenue perspective. When you are a Bitcoin miner you generally have to sell your Bitcoins to cover you cost. In this way you are always a seller. Bitcoin miners’ revenue stream can therefore influence price over time.

To understand why we are moving into a time of buying we need to understand the historical standards. Bitcoin has declined to very low levels. The levels are so low that the value of newly issued bitcoins is also low compared to earlier issued Bitcoins from mining. This indicates that Bitcoin is now undervalued.

Coinmarket.no/price/bitcoin/

2018 bear market

It is always interesting to look back in time when trying to assess what the future will bring. Bitcoin peaked back in December 2017 with a price of $20,000. Within a year the price was very low at near $3,200 in mid-December 2018. When the price was that low the Puell Multiple indicated that the cryptocurrency was undervalued and the price started to rise again. 

If we take a look a bit longer back in history, the Bitcoin went through similar things. Bitcoin experienced a then high of $1,100 in November 2013, which fell back to a low of $150 in January 2015. The Puell Multiple also bottomed out near the current level as today before raising again. 

Is the bear market over?

If we have a look at the Multiple, the worst is behind us. However, the Puell Multiple has not dropped to the same level as we saw twice before rebounding. We therefore expect a bit of rough seas before we are in the clear. 

If we use history, we may see one more bout of selling, which could give us prices at around $4,000-$5,000. We have experienced better prices in the earlier parts of the month. Currently, however, the Bitcoin is trading around $6,500. That is quite a bit higher than the possible $4,000 low. Prices hit a high of $6,907 early Friday, which indicates that the currency has juice to start a climb.

Was this helpful?