The Puell Multiple has just given a buy signal for the fifth time in Bitcoin’s history, but its creator warned that the falling hash rate and China’s miner purge are important factors to consider.

The crypto market is in a cautiously bullish state after Bitcoin price surged above $ 35,500 yesterday (June 28), fueling hope that the uptrend will resume soon.

Bitcoin price chart | Source: Tradingview

Despite the upside move, some analysts have warned that the failure to break a daily close above the USD 35,000 resistance is a sign that traders are simply closing positions at any point. Breakout of resistance, a sign that further declines are possible.

According to David Puell, on-chain analyst and creator of the Puell Multiple, this indicator is only given fifth Bitcoin buy signal in history.

“Reports received that the strangest named indicator has just given the fifth buy signal in Bitcoin history. Looks good, but keep in mind that the Puell Multiple also reacts to hashrate movements and the hashrate follows the price and not the other way around. “

Puell Multiple focuses on the supply side of the Bitcoin economy, primarily miners and their revenue, and studies market cycles from a mining revenue perspective.

It is calculated by dividing the daily output value of Bitcoin (in dollars) by the 365-day moving average of the daily output value.

The Puell multiple equation and historical performance | Source: LookIntoBitcoin.com

As can be seen in the graph above, the indicator measures periods when the daily Bitcoin output values ​​have reached historical lows, represented by green boxes or historical highs when the indicator points to the red box.

Earlier cases in which the Puell Multiple indicated a good buying opportunity were in mid-2018 when the price of Bitcoin fell below $ 4,000 (mid-crypto winter) and again in March 2020 when the price fell due to the Covid-19 Pandemic crashed.

It also gave traders a sell signal in late 2017 when Bitcoin price hit this cyclical high, as well as during the 2013 Bitcoin bull market.

Miner purge reduces the difficulty of mining Bitcoin

Bitcoin’s struggles were recently exacerbated by the mining crackdown in China, which resulted in many large mining operations being shut down and relocated to other countries. Analysts are now heading for the biggest decline in mining troubles of all time as the hashrate drops from historic highs.

Difficulties in mining bitcoin | Source: Glassnode

While miners are often seen as forced sellers because they have to cover the fixed fees to run the mining operation, the most recent sale was followed by a 50% discount, meaning twice as many bitcoins have to be sold to also cover the increased ones Costs incurred in relocating miners from China.

Cautious traders might focus on the fact that previous instances of significant declines in hashrate were followed by price declines, making them reluctant to wager funds in current market conditions.

Average Bitcoin Hashrate vs. Price | Source: Glassnode

Although Bitcoin price saw some gains on June 28, Puell warned that many factors should be considered and that individual indicators should not be used to make trading decisions.

Puell said:

“Hashrate depends on the price and other exogenous factors, as we clearly saw with the situation in China.”

Teacher

According to Cointelegraph

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