Investing 101

We know that cryptocurrencies are put into circulation through a process called mining and in order to be mined, miners (a powerful computer) must solve a complex mathematical problem. Miners with a higher hash rate (processing power) will have a higher probability of success and hence get the reward. 

However, what does the difficulty of this process tell us about the value of the coin? 

A high cryptocurrency difficulty means it takes additional computing power to verify transactions entered on a blockchain, meaning that supply is harder to come by, thus supporting prices. On the other hand, low difficulty mining means the supply is easy to come by thus providing pressure on prices. 

However, as networks move away from the Proof of Work process, mining (and hence difficulty) won’t matter anymore. Take Ethereum for example, what started as PoW is now about to change to Proof of Stake - reducing the environmental impact posed by the electricity-heavy PoW mining process. 


What does the difficulty of a mining process tell us about the value of the coin? 

Difficulty

Crypto Indicators

The Puell Ratio is the ratio of today's supply divided by the average supply of the last 365 days - it explores market cycles from a mining revenue perspective. The ratio allows you to gauge the local level of supply in the context of the recent past. High values of the Puell ratio have shown to gauge high supply and therefore bearish price action. On the other hand, Low values of the Puell ratio have shown to gauge low supply and therefore bullish price action.

There are periods of time where the value of Bitcoins being mined and entering the system is too large or little relative to historical norms - understanding these periods can really help Bitcoin investors forecast what could happen next. 



Puell Multiple

Difficulty