These indicators suggest that the Bitcoin bull run still has a lot of potential

Key indicators tracking Bitcoin blockchain activity, miner capital 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 the anchoring effect, could lead investors to expect bitcoin prices to fall after this year’s 150% surge.

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

Bitcoin (BTC), the leading cryptocurrency by market value, has surged more than 150% this year, far outperforming traditional assets such as the S&P 500, gold and the U.S. dollar.

This could lead some investors, especially those who have not experienced previous cryptocurrency bull runs and are "anchored" to the brutal bear market of 2022, to intuitively believe that Bitcoin is overvalued and expect prices to fall in the coming months. Anchoring is a cognitive bias that causes investors to overly rely on recent or initial data when making future judgments.

Traditional financial investors who want to gain exposure to Bitcoin may fall victim to the anchoring effect, intuitively waiting for a cheaper entry price. This is because, in traditional markets, assets rarely double in value in less than a year. In addition, investors are often susceptible to loss aversion, a cognitive behavior of exiting winning trades too early and holding on to losing positions for too long.

Despite the above cognitive biases, three key indicators - tracking Bitcoin blockchain activity, miner fund flows, and the 200-day moving average - suggest that Bitcoin still has a lot of room to rise, and blindly trusting these biases may lead to investment losses. Let's discuss these indicators in detail.

Puell Multiple

The Pools Multiple measures the ratio between the dollar value of newly mined Bitcoin each day and the 365-day moving average dollar value of that issuance. New generation here refers to the current supply, or new coins mined or added to the network. Since the last halving in early 2020, miners have been mining about 900 bitcoins per day.

A higher reading suggests that miners are currently experiencing high profitability compared to their yearly average, so they may be selling their Bitcoin holdings faster, adding to bearish pressure on the market. A lower reading suggests the opposite.

Historically, readings above 4 have coincided with market peaks, with early bull cycles going as high as 10. A multiple below 0.5 has suggested a market bottom.

According to data tracked by Glassnode, the Pools multiple is at 1.53 at press time, well below the danger zone above 4.

The indicator could slip into the accumulation zone again (below 0.5) after the Bitcoin mining reward halving early next year. The built-in code will halve the issuance of Bitcoin per block from 6.5 BTC to 3.25 BTC.

“Since the number of bitcoins issued in the subsidy is effectively halved, the only way for this indicator to recover quickly is for the bitcoin price to rise quickly,” analysts at Blockware Intelligence said in the latest weekly report.

“The next halving is expected to take place in March 2024. That’s not that far away,” the analyst added.

MVRV Z-score

The Z-score of Bitcoin’s market value-to-realized value (MVRV) ratio shows how many standard deviations an asset’s market value is away from its actual or fair value.

Market capitalization is obtained by multiplying the total number of tokens in circulation by the market price. Realized value is a variation of market capitalization and can be calculated by dividing the value of the last bitcoin moved on-chain by the number of coins in circulation. This metric excludes coins lost from circulation and is said to reflect the fair value of the network.

As of now, 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.

Looking at historical data, Z-scores above eight indicate overvaluation and mark bull market tops, while negative values ​​indicate discounted prices and mark bear market bottoms.

Mayer Multiple

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

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

As of this writing, the Mayer Multiple is 1.404, meaning that Bitcoin’s price of $42,937 is 1.4 times its 200-day moving average ($30,563).

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