Bitcoin Bull Run: Unstoppable? Key Indicators Suggest So

• Understanding Cognitive Biases and Bitcoin's Continued Rally Potential
• The Impact of Cognitive Biases on Bitcoin Value Perception
• Indicator 1: Puell Multiple
• Indicator 2: MVRV Z-Score
• Indicator 3: Mayer Multiple

Understanding Cognitive Biases and Bitcoin's Continued Rally Potential

Anchoring and other cognitive biases may lead investors to predict a Bitcoin$42,260 -0.64% price decline following this year's 150% rally. However, various indicators such as the Puell Multiple, MVRV Z-Score, and Mayer Multiple suggest that Bitcoin is far from overvalued and could continue to rally in 2024.

The Impact of Cognitive Biases on Bitcoin Value Perception

Anchoring is a cognitive bias that compels investors to overly rely on recent or initial data when making future judgments. Traditional finance investors seeking Bitcoin exposure may succumb to anchoring bias and instinctively wait for lower entry prices. That's because, in traditional markets, assets seldom double in value in less than a year. In addition, investors tend to exhibit loss aversion, a cognitive behavior characterized by prematurely exiting winning trades and holding onto losing bets for extended periods.

However, adhering to these cognitive biases could be detrimental as three indicators suggest that Bitcoin still has considerable upside potential.

Indicator 1: Puell Multiple

The Puell Multiple measures the U.S. dollar value of the daily issuance of Bitcoin relative to the 365-day moving average of the issuance's dollar value. Here, issuance refers to the current supply or newly released coins on the network. Since the last Bitcoin halving in early 2020, miners have minted approximately 900 tokens daily. High readings indicate that current miners' profitability is high compared to the yearly average, meaning they could liquidate their holdings more rapidly, contributing to bearish market pressures. Conversely, low readings suggest the opposite.

In past instances, readings over four have coincided with market peaks, reaching up to 10 in early bull cycles. In contrast, multiples less than 0.5 have signaled market bottoms. As of now, the Puell Multiple is at 1.53, far from the risky zone above four.

This indicator may slide back into the accumulation zone (below 0.5) early next year after Bitcoin's mining reward halving. The built-in code will reduce the per-block issuance of Bitcoin to 3.25 BTC from 6.5 BTC.

Indicator 2: MVRV Z-Score

The MVRV Z-Score shows how many standard deviations an asset's market capitalization differs from its realized or fair value. Market capitalization is calculated by multiplying the total number of circulating tokens by the current market price. The realized value is a market cap variation, calculated by dividing the value of all Bitcoins at the price they were last moved on-chain by the number of coins in circulation. This metric excludes coins lost from circulation and is said to reflect the network's fair value.

At the moment, the Z-Score is at 1.6, indicating that Bitcoin is far from overvalued and may continue to rally next year, as anticipated by various analysts.

Indicator 3: Mayer Multiple

Created by Bitcoin investor and podcast host Trace Mayer, the Mayer Multiple measures the difference between Bitcoin's current market price and the 200-day simple moving average (SMA). This indicator helps identify overbought and oversold conditions comparing the current market price with its 200-day moving average. This assumption is based on the market reverting to its mean or the 200-day SMA after extended bullish/bearish trends push the multiple above 2.4/below 0.5.

The current Mayer Multiple sits at 1.404, meaning Bitcoin's price at $42,937 is 1.4 times its 200-day SMA at $30,563. Thus, Bitcoin has considerable room to rally before it can be considered overbought relative to its 200-day SMA, one of the most widely tracked gauges of long-term trends.

Edited by Jonathan Stoker