How the puell multiple sets a non arbitrary baseline to judge the price of Bitcoin as a produced commodity which can give real signals as to relative highs and lows of its price based on the energy it takes to mine it.
(www.lookintobitcoin.com)https://www.lookintobitcoin.com/charts/puell-multiple/How the Puell multiple sets a non arbitrary baseline to judge the price of Bitcoin as a produced commodity which can give real signals as to relative highs and lows of its price based on the energy it takes to mine it.
One of the things you really want to look at in any investment is how much are the price is due to public hype in public surge and public retail investment enthusiasm versus some baseline measure of the real value of whatever it is you're investing in.
For example it's pretty obvious that Tesla's going to be a great company and continue to have great growth but obviously it experienced a price hike in its stock value that was due to enthusiasm that anticipated all that years in advance and that's one of the reasons that the price of the stock has fallen recently from its highs.
It's also true with things like Bitcoin where Bitcoin goes through cycles where Bitcoin starts going up and the News covers that and everybody thinks they're going to get rich at that point and they jump in and that causes exuberance which raises the price to a very temporary high which goes geometric and even exponential. Then that public enthusiasm reaches a peak and too much of the prices based on that over enthusiasm and so it starts to drop again. But each time it drops it doesn't drop below it's previous lows and that's the case now ar $19,000.
Well one of the nice things about Bitcoin is that because it's a mined cryptocurrency meaning that miners who create it actually have to justify dedicating their machine and their electricity bill to making it based on the price. So you can do a sum total of all the coins produced by those Miners and look at their relative cost to what their average cost has been over the past year and judge that against the price of electricity and get an idea of whether or not in real production terms in terms of the cost of production via mining whether or not the price is high or low.
And when you do that one of the ways you can do that is with this thing called the puell multiplier.
And that's described on this website as well as a graph.
And the interesting thing about it is when the Puell multiplier hits a low it's always correctly anticipated a low in the price point and is usually the signal that a reversal is due and Bitcoin will rise again to new highs.
Now of course there's another aspect to bitcoin that forces this function and that is something called the halvening where the number of bitcoins that are produced in total by mining is literally halved approximately every 4 years.
To related it to gold mining imagine you are mining gold and there was a certain amount of gold that was already mined and out there and trading and all the gold mines in the world were producing say an extra million tons a year. But every 4 years that number would get halved so in 4 years all the mines together would only be able to produce half a million tons of gold per year, Then the price of gold or new Bitcoin would obviously be forced to rise because of a forced scarcity.
Now that can't happen in the natural world really but with Bitcoin as an artificial scarcity item it algorithmically is forced to have it scarcity increased by double by halving the amount that can be mined every 4 years.
So that's one of the reasons that this Puell multiplier can indicate a low and you can be fairly well assured that when the next high happens the high will be higher than the previous one. This is because you know the halving function is also working which is going to double the scarcity of new Bitcoin produced. At least that's worked in the last four or five or six cycles of Bitcoin since Bitcoin was created. it's never failed.
So now this Puell indicator is at a low and the next halvening is probably about 12 months to 18 months away. And what typically happens is the smart people realize that halving is going to happen and they start reinvesting in Bitcoin way ahead of all the average retail investors who are only going to realize that's going to happen after the news media starts talking about Bitcoin again. And that only happens when bitcoin price starts to go up.
Anyway this Puell indicator is just something to know about and the important thing to know about it right now is it seems to be at its low point which has typically signaled the lowest the price is going to get because it can't get any lower or minors will stop mining it and so there's a real hard value proposition there.
By the way one of the reasons that ethereum has become a sHIT coin is because they've gotten away from mining and has gone to this proof of Stake consensus thing which just totally separates the value of the coin from any hard valuation related to electric power and the cost of production at all.
And that's why most of the smart people have dumped their ethereum and switched to ethereum Classic which is pretty much exactly like ethereum but they have retained mining. But that's another story
