The cryptocurrency market was in a state of cautious optimism on Monday after the price of Bitcoin (BTC) briefly surged above $ 35,500, renewing hopes that the uptrend will resume shortly.
Despite the bullish move, some analysts have warned that the failure to break a daily close above the USD 35,000 resistance level is a sign that traders are simply closing positions on any breakout of resistance – an indication that further bearish moves may be imminent.
According to David Puell, on-chain analyst and creator of the Puell Multiple, the indicator has just given its fifth Bitcoin buy signal in history.
$ BTC: Receiving reports that the most awe-inspiring indicator has just given its fifth buy-signal in BTC history.
Looks good, yes, but keep in mind that Puell Multiple also responds to hash rate moves and hash rate follows price, not the other way around.
– David Puell (@kenoshaking) June 28, 2021
The Puell Multiple focuses on the supply side of the Bitcoin economy, primarily Bitcoin miners and their revenue, and examines market cycles from a mining revenue perspective.
It is calculated by dividing the daily output value of BTC (in US dollars) by the 365-day moving average of the daily output value.
The Puell multiple equation and historical performance. Source: LookIntoBitcoin.com
As can be seen in the graphic above, the indicator measures periods of time during which the daily value of the Bitcoin issued reaches historical lows, which are represented by the green box, or historical high values, which are shown when the indicator climbs into the red box .
Previous cases where the Puell Multiple pointed to good buying opportunities include in mid-2018, when the price of BTC fell below $ 4,000 in the middle of the crypto winter, and again in March 2020, when prices rose due to the COVID- 19 pandemic collapsed.
It also gave traders a sell signal in late 2017 when the price of BTC peaked at the height of this cycle as well as during the Bitcoin bull market of 2013.
Miner purge results in a historic decline in mining difficulty
The recent bitcoin battles have been exacerbated by anti-mining crackdowns in China, which have caused numerous large mining operations to close and relocate to other countries. Analysts now expect the biggest drop in mining troubles ever as the hash rate drops from historic highs.
Difficulties in mining bitcoin. Source: Glassnode
While miners are generally seen as forced sellers as they have to cover the fixed costs of running a mining operation, recent sales behavior has been followed by a 50% price drop, meaning twice as much BTC has to be sold for the same fiat cost as well To cover increased costs incurred by miners relocating their operations out of China.
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Cautious traders may focus on the fact that previous cases of significant drops in hash rate were followed by price drops, resulting in reluctance to provide funds in current market conditions.
Average Bitcoin hash rate vs. price. Source: Glassnode
While the price of BTC made some gains on Monday, Puell warns that multiple factors should be considered and no indicator should be used in isolation to make trading decisions.
“The hash rate follows the price AND other exogenous factors, as we clearly saw with the situation in China.”
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every step of investing and trading involves risk, so you should do your own research when making a decision.