Bitcoin’s extraordinary surge of over 150% this year has left some investors cautious, fearing an impending price correction. However, key indicators tracking blockchain activity, miner flows, and the 200-day moving average suggest that Bitcoin is far from overvalued and may continue its rally into 2024.
Cognitive Biases and Bitcoin’s Rally
Cognitive biases, such as anchoring, might lead investors to anticipate a decline in Bitcoin’s price following the substantial 150% rally in 2023. Anchoring is a psychological bias where individuals rely heavily on recent or initial data when making future judgments.
Traditional finance investors, accustomed to slower market movements, may be inclined to wait for more favorable entry prices, underestimating the rapid dynamics of the cryptocurrency market.
Indicators Paint a Positive Picture
Contrary to potential biases, three key indicators provide insights into Bitcoin’s favorable position:
- Puell Multiple:
- Measures the U.S. dollar value of daily Bitcoin issuance relative to the 365-day moving average.
- Elevated readings suggest high miner profitability, potentially leading to increased selling pressure.
- The current Puell Multiple stands at 1.53, indicating room for growth before reaching historically overvalued levels.
- MVRV Z-Score:
- Measures how many standard deviations Bitcoin’s market capitalization differs from its realized or fair value.
- The Z-score of 1.6 suggests Bitcoin is far from overvalued, aligning with expectations of a continued rally.
- Mayer Multiple:
- Developed by Trace Mayer, it compares Bitcoin’s market price with its 200-day simple moving average (SMA).
- A Mayer Multiple of 1.404 indicates that Bitcoin has room to rally before being considered overbought relative to its 200-day SMA.
Looking Ahead
Despite Bitcoin’s significant gains, these indicators point to a market that is not yet overextended. The upcoming mining reward halving in March 2024 could further impact the Puell Multiple, potentially leading to increased demand and price appreciation.
Investors are cautioned against letting cognitive biases influence decisions, as these indicators suggest that Bitcoin’s bullish trajectory may have more room to run.
This information is not legal advice. Do your own research before making any decisions. Only invest what you can afford to lose and seek independent financial advice if needed. Understand the risks involved before purchasing any cryptoassets.