These indicators indicate that the Bitcoin bull market still has great potential.

These indicators suggest that the potential for the Bitcoin bull market is still strong.

Author: Omkar Godbole, Translation: Shanhuan Ba, LianGuai

Key indicators tracking Bitcoin blockchain activity, miner funding flows, and the 200-day moving average suggest that Bitcoin is far from overvalued and could continue to rise in 2024.

• Cognitive biases, such as anchoring effect, may cause investors to expect a price drop for Bitcoin after its 150% surge this year.

• Indicators like Puell Multiple, MVRV Z-Score, and Mayer Multiple suggest that Bitcoin is far from overvalued and could continue to rise in 2024.

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Bitcoin (BTC), the leading cryptocurrency in terms of market value, has surged over 150% this year, outperforming traditional assets like the S&P 500 index, gold, and the US dollar.

This may lead some investors, especially those who haven’t experienced the previous cryptocurrency bull market and are “anchored” to the harsh bear market of 2022, to intuitively believe that Bitcoin is overvalued and expect a price drop in the coming months. Anchoring effect is a cognitive bias that leads investors to rely too heavily on recent or initial data when making future judgments.

Traditional financial investors looking to get into Bitcoin may fall victim to the anchoring effect and wait for cheaper entry prices. This is because in traditional markets, assets rarely double in value in less than a year. Additionally, investors are often influenced by loss aversion, a cognitive behavior that leads to prematurely exiting profitable trades and holding onto losing positions for extended periods.

Despite the presence of these cognitive biases, three key indicators – tracking Bitcoin blockchain activity, miner funding flows, and the 200-day moving average – suggest that Bitcoin still has significant upside potential, blindly believing in these biases could result in investment losses. Let’s delve into these indicators in detail.

Puell Multiple

The Puell Multiple measures the ratio between the daily USD value of newly generated Bitcoin and the 365-day moving average USD value of that supply. Here, newly generated refers to the current supply, i.e., newly mined or added to the network coins. Since the last halving in early 2020, miners have been mining approximately 900 Bitcoins per day.

A higher reading indicates that miners are currently highly profitable compared to the annual average level, leading them to potentially sell their held Bitcoins faster and exacerbate bearish pressure in the market. A lower reading implies the opposite.

Historically, readings above 4 have coincided with market peaks, even reaching as high as 10 during early bull market cycles. On the other hand, a multiple below 0.5 hints at market bottoms.

According to data tracked by Glassnode, as of the time of writing, the Puell Multiple is 1.53, far below the danger zone of 4 or above.

This indicator may slide back into the accumulation zone (below 0.5) early next year after the Bitcoin mining rewards are halved. The code built into the system will reduce the issuance of Bitcoin per block from 6.5 BTC to 3.25 BTC.

Analysts at Blockware Intelligence stated in their latest weekly report, “The only way for this indicator to quickly rebound is for the price of Bitcoin to rise rapidly, as the amount of Bitcoin issued in subsidies is effectively halved.”

The analysts added, “The next halving is expected to take place in March 2024. It’s not far off.”

MVRV Z-score

The Z-score of the Market Value to Realized Value (MVRV) ratio for Bitcoin shows how many standard deviations the market value of the asset deviates from its actual or fair value.

The market value is derived by multiplying the total number of tokens in circulation by the market price. Realized value is a variation of the market value, calculated by dividing the value of the last Bitcoin moved on-chain by the number of coins in circulation. This indicator excludes coins lost from circulation and is said to reflect the fair value of the network.

Currently, the Z-score is 1.6, indicating that the cryptocurrency is still some distance away from being overvalued and may continue to rise next year, as some analysts expect.

Based on historical data, a Z-score above eight indicates overvaluation and signals the top of a bull market, while negative values indicate discounted prices and mark the bottom of a bear market.

Mayer Multiple

The Mayer Multiple, developed by Bitcoin investor and podcast host Trace Mayer, measures the difference between the current market price of Bitcoin and its 200-day simple moving average (SMA).

This indicator compares the current market price to its 200-day moving average to help identify overbought and oversold conditions. The assumption is that after the multiple is above 2.4 or below 0.5 due to a long-term bullish/bearish trend, the market will revert to its mean or the 200-day moving average.

As of the time of writing, the Mayer Multiple is 1.404, which means the price of Bitcoin at $42,937 is 1.4 times its 200-day moving average of $30,563.

In other words, Bitcoin still has a significant upside potential before we can say it is overbought relative to the 200-day moving average. The 200-day moving average is one of the most widely tracked long-term trend indicators. According to technical analysis, once the asset value falls below the 200-day moving average, the asset is considered to be in a bull market, and vice versa.

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