You want to analyze the supply side of Bitcoin? Then the Puell Multiple might be the metric you need. In this article, we'll dive deep into what the Puell Multiple is, how it works, and how you can use it to enhance your Bitcoin investment strategy.

What is the Puell Multiple?

The Puell Multiple examines the supply side of Bitcoin’s economy—specifically, the revenue generated by Bitcoin miners by combining on-chain and off-chain data. It is used to assess the state of Bitcoin mining revenues compared to a longer term average. This metric was created by David Puell and has been instrumental in helping investors understand when Miners are potentially under stress.

How is the Puell Multiple Calculated?

The Puell Multiple is defined as the daily issuance value of Bitcoins (in USD) devided by the 365-day moving average of the daily issuance value. The daily issuance value of Bitcoin is the total value of Bitcoins mined each day, denominated in USD. The 365-day moving average smooths out short-term volatility.

How can the Puell Multiple be Interpreted?

Puell Multiple can be interpreted as "If all mined Bitcoins were sold immediately in the market, how profitable are miners compared to last historical one year?".

Miners are the only entity that requires constant cost such as running electricity. Thus, miners' behaviors are always linked to price to certain degree. If Puell multiple rises, it indicates that Miner's revenue is increasing significantly compared to the cost they put in. If Puell multiple decreases, it indicates that Miner's revenue is decreasing significantly compared to the cost they put in. When the price of Bitcoin falls to the point where miners can't handle the cost of electricity, some misers will be forced to stop their mining action.

How to use the Puell Multiple?

Historically the Puell Multiple has good record in calling price bottoms and tops. It helps to identify periods when the market is either overheated or undervalued based on mining revenues. It's values can be interpreted in the following way:

• High Puell Multiple (Red Zone): When the Puell Multiple enters the upper band, it indicates that miner revenues are significantly higher than historical norms, which goes along with an increasing miner's motive to sell Historically, these periods have often coincided with Bitcoin price peaks, suggesting a potential for price corrections. The border or the upper band naturally tends to be a decreasing function. Values above 3 are considered high risk for corrections.
• Low Puell Multiple (Green Zone): When the Puell Multiple enters the lower band (values below 0.75), it indicates that miner revenues are significantly lower than historical norms. These periods have often coincided with Bitcoin price bottoms, suggesting potential buying opportunities.

Using the Puell Multiple in Your Investment Strategy

To use the Puell Multiple in your investment strategy here are some practical tips:

1. Monitor Regularly: Keep an eye on the Puell Multiple to stay updated on market conditions. You can see and track this metric here.
2. Smooth out Noise: Use moving averages to smooth out noise that can lead to wrong interpretations.
3. Combine with Other Indicators: Try to find confluence amongst multiple indicators like the MVRV, the RHODL Ratio or the Supply in Profit and Loss.

Summary

The Puell Multiple is a valuable tool for Bitcoin investors, offering insights into market cycles through the lens of miner revenues. By understanding and utilizing this metric, you can make more informed investment decisions and navigate the Bitcoin cycles with greater confidence.

Author's Disclaimer: This article has been written for informational purposes only. It shall not be seen as financial advice in any shape or form.