With bitcoin’s price recovering more than $5,000 in a few days and heading towards a multi-day high, bulls have received further support that the asset may aim even further north. The popular Puell Multiple metric has displayed a buy signal for just the fifth time, with every previous occasion being “spot on,” according to analysts.
Developed by on-chain strategist David Puell, the Puell Multiple is calculated by dividing the daily issuance value of bitcoins in USD by the 365-day moving average of that daily issuance value. It looks at the supply side of BTC’s economy – miners and their revenue, which, as reported earlier, has nosedived lately.
Based on the aforementioned data, it provides a chart ranging from zero to ten (and in some extreme cases above ten). If it goes above eight, it’s considered a sell signal, while if it heads beneath 0.5, it could be used as a buy signal.
And, it has gone precisely there – below 0.5 for only the fifth time in its history. On the four occasions before this one, it marked a bottom, and BTC’s price headed north shortly after.
CryptoPotato reported the last time the metric showed a buy signal in June 2020. This was just a few months before the bull run started, in which bitcoin multiplied its USD value by a factor of six in half a year.
Consequently, it’s not surprising that many cryptocurrency analysts have highlighted PM’s levels now, saying that it’s “flashing a big buy signal.”
Although this might sound very promising for the bulls, there could be more to the Puell Multiple story. The creator, David Puell, acknowledged the buy signals as they are “looking good” but warned that the metric actually moves in accordance with the hash rate.
As such, it’s somewhat expected to be declining, as the hash rate has plummeted by more than 60% in less than two months following China’s crackdown on BTC mining.
Puell argued that the “hash rate follows price, not the other way around,” which is why traders need to be wary of this particular situation as it might not be as simple as just a regular buying signal.
Furthermore, bitcoin actually dropped and spent more time beneath the 0.5 level on all four previous occasions, which suggests that it may take more time for its price to react.