Bitcoin in ‘Accumulation’ Phase, Onchain Indicators Suggest
- Several indicators show that Bitcoin is undervalued and oversold and that now is a great time to buy for long-term hodling.
Multiple indicators are showing that the time is ripe for Bitcoin (BTC) and other cryptocurrencies acquisition, or rather, accumulation.
One is the Puell Multiple, which now reads below 0.5 and has touched below 0.4 in the recent past. The metric is obtained by dividing the daily issuance of Bitcoin (in USD) by its 365-day average price. Issuance is the number of cryptocurrency miners who receive blockchain rewards for their services.
Binance notes that at its current reading, the indicator is now said to have dropped to the “green zone.” This shows that newly mined coins are undervalued compared to their annual average price. Fidelity’s Jurrien Timmer and crypto analyst Anthony Pompliano have previously pointed out Bitcoin’s current price-value divergence.
To put it in another way, crypto miners’ profitability has signicifantly declined with the prevailing bear market. Miners have been forced to sell off their stash or resort to alternative income sources. Historically, such an event has been the greenlight for long-term hodlers to stack up their coins some more.
Time to Buy Bitcoin?
According to a Sunday publication by Blockware Intelligence analysts, “Entering the green zone is a good time to average in, and for those more conservative, you can also wait for confirmation with a move out of the accumulation zone.”
In the past, low readings (0.5 and below) of the Puelle Multiple have tallied with peak selling and the resultant market downturn. This was observed in Q4, 2011 and also in the periods November 2018-January 2019, and March 2020-May 2020. The phenomena was also seen in June last year, following China’s blanket ban on cryptocurrencies.
During all these times, the Puell Multiple has fallen to the green zone during the final phases of the bear market. Its value then rose to coincide with the weakening bear bottom, price consolidation and the subsequent upswing.
However, the usefulness of this indicator has been questioned considering that miners’ sales account for minimal outflows. As Coinbase highlighted
” If all newly issued bitcoin were immediately sold on the market each day, it would equate to only 900 BTC of selling pressure, which represents just 1%-1.5% of total daily volume.”
Still, analysts remain confident in the indicator’s forecast of upcoming ‘brighter days.’ Crypto intelligence company Jarvis Labs maintains that for as long as mining is the “backbone of the network,” the Puell Multiple is indispensable. Crypto analytics platform CryptoQuant concurs, saying miner’s sales make a significant portion of inflows to crypto exchanges. Bitcoin’s value growth over the years also gives the indicator utility, it adds.
The MVRV Z-score, which measures the market value to realized value divergence, is another indicator showing Bitcoin under/overvaluation. Market value is synonymous to market capitalization. Realized value is the value of all coins bought, derived from summing their market value at the time they last moved on the blockchain. The realized value adjusts with the number of lost coins so that it is in close proximity to fair value.
A reading below zero marks bear bottoms, while one above seven shows bull tops. The score has been negative since mid-June, indicating Bitcoin undervaluation. Long-term moving averages are other indicators that have led to the same conclusion.
Bitcoin is trading at $22,885.84, down 2.4 percent in the past 24 hours.