Bitcoin may be poised to move higher, but it won’t be a meteoric rise, and any increase will be well below the cryptocurrency’s all-time high. The world’s leading crypto by market cap has rebounded and traded in a narrow range after falling as much as 50% from its record high last month.
However, Bitcoin mining activity suggests a move above $40,000 is possible.
“Several on-chain and network indicators have reflected a bullish skew over the week, albeit most being relatively neutral for the short and medium-term,” Lennard Neo, a certified financial analyst and head of research at Stack Funds in Singapore, said in a research report.
Adam Smith’s invisible hand—a metaphor describing incentives to buy and sell—are at work in the market.
When Bitcoin’s price is high, Bitcoin miners have incentive to sell and pocket a quick profit. This can lead to an overall downturn in the market as supply increases.
But with prices well below the recent high, or even the retrenchment from the peak, Bitcoin miners tend to sit on their new coins. This can lead to higher prices if demand is strong.
Bitcoin miners use high-powered computers to solve complex hexadecimal puzzles to earn new coins. The process is needed to refresh the blockchain, the unalterable record of Bitcoin transactions.
Neo cited the Puell Multiple, a metric developed by Bitcoin analyst David Puell, as evidence suggesting a price gain. The ratio divides the daily value of Bitcoin issuance by its one-year moving average, or more simply, mining revenue over its one-year average.
“A high Puell multiple suggests high profitability for miners, which have led to subsequent sell-offs,” Neo said. “Similarly, when the ratio is low, miners’ propensity to sell decreases, leading to a supply crunch and eventually a price increase.”
The metric is now at about 1.40, a level where miners have less incentive to sell. The ratio had been above 2.50 earlier this year and peaked at about 3.53.
The elevated ratios may have had a hand in the Bitcoin market trading sideways— within a narrow range—prior to the downdraft.
“This signifies potential buying opportunities should the multiple decline to below 1.0,” Neo said. “Having said that, we prefer to be cautiously optimistic as further downside could surface, which in turn generates better value for anyone looking for entry points.”
“Entry points” translates from cryptospeak to “a good price to buy” Bitcoin for gutsy investors.
Bitcoin’s Fear and Greed Index registered “extreme fear” on Thursday. A month ago, it registered “extreme greed.” “Extreme fear” may indicate that investors are overly concerned about future price movement.
This could mark a buying opportunity for…