Ultimate magazine theme for WordPress.

This level could be crucial for Bitcoin, the pricing model suggests

Bitcoin Difficulty per Issue, a Proof-of-Work (PoW) pricing model, could provide clues to the next crucial level BTC would need to overcome.

Bitcoin is approaching difficulty per issuance model 2.0 level

As one analyst noted on Twitter, the BTC price is now nearly double the cost of production. Difficulty per issue is a Bitcoin PoW pricing model based on two metrics: mining difficulty and issue.

Mining Difficulty is a Bitcoin network mechanism that sets the computational difficulty for miners to mint new coins and insert blocks into the chain. The difficulty is that the BTC network has been configured to keep its supply production at a constant level.

Whenever the Bitcoin hashrate, a measure of the total amount of computing power associated with the blockchain, changes value, the rate at which miners produce new blocks also fluctuates. Since the network is designed to prevent this, it adjusts the difficulty just as much as necessary to counteract these fluctuations.

Since difficulty depends on hashrate in this way, it encapsulates all mining-related expenses incurred by miners and can thus be used to estimate production costs.

The difficulty-per-issuance model is based on this idea. To calculate the cost of 1 BTC, the model divides the difficulty term by the “spend”, the total amount of new coins added to the circulating supply.

Now here is a chart that shows the three main tiers of this model and where Bitcoin stands in relation to them:

The three levels of difficulty per issue price levels | Source: @paulewaulpaul on Twitter

As shown in the chart above, bitcoin price was below the difficulty per issue of 1.41 (the middle line) some time ago. This level represents a kind of average production cost for the BTC miners.

The bottom line gives a lower bound on the estimated cost of production, while the top line gives an upper bound. The chart shows that BTC has never touched the lower border in this cycle.

With the recent rally, BTC broke above 1.41 and is now approaching 2.0 (the upper bound). In the past, bitcoin has stayed between these two levels for long periods of time in some cases.

Typically, bull rallies have taken place after Bitcoin has successfully broken out of this zone in the past. So, if the crypto’s price manages to surpass this level, it could be a positive sign for investors.

However, for the coin to be rejected by difficulty level 2.0 per issue is as real a possibility as there is historical precedent for it. Now it remains to be seen how the price will react if it retests this line (assuming it does so at all in this rally).

BTC price

At the time of writing, Bitcoin is trading around $23,100, up 1% over the past week.

Bitcoin price chart

Looks like BTC hasn’t moved much lately | Source: BTCUSD on TradingView

Featured image by Brian Wangenheim at Unsplash.com, charts by TradingView.com, Glassnode.com

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers

Comments are closed.

%d bloggers like this: