Definition. The Difficulty Regression Model is an estimated all-in-sustaining-cost of production for Bitcoin (purple), shown against spot price (black) together with a Difficulty Multiple oscillator (green/red columns) measuring the distance between the two. It considers difficulty as the ultimate distillation of mining 'price', accounting for all the mining variables in one number. Thus, the value reflects an estimated average production cost for BTC by the mining industry, without requiring bespoke breakdown of mining equipment, power costs, and other logistical considerations.

Technical. The regression model is run between Difficulty and BTC Market Cap, returns an R2 = 0.944, and is calculated as follows:

Difficulty Regression Price = exp(A + B x log(Difficulty / C)) / Circulating Supply

where A and B are regression constants, and C is an adjustment factor for Difficulty:

• A = 10.2560
• B = 0.5250
• C = 4,294,967,296

The Difficulty Multiple is computed as median(Regression Price / Spot Price - 1, 14): green columns mark periods where the regression (production cost) price is above spot, red columns where it is below.

Note: This regression calculation was carried out using daily resolution data up to 14-September 2022. Analysts may wish to revise the regression constants of this regression model on a periodic basis.

Interpretation. The Difficulty Multiple is a simple oscillator to visualize the distance between spot price and the Difficulty Regression Model Price, and may be considered to reflect an oscillator describing Price / Estimated Cost of Production. Periods where spot trades below the estimated production cost (green columns) have historically aligned with bear market lows, where only the most efficient miners remain profitable; large premiums of spot over production cost describe elevated mining profitability, which typically attracts additional hashrate and subsequent upwards difficulty adjustments.

Notes. Original inspiration by Hans Hague, with idea further developed by Checkmate. This model was first featured by Glassnode in The Week On-chain Week 25, 2022 Newsletter. Built from Difficulty and Circulating Supply. See also the Difficulty per Issuance Pricing Model for an alternative difficulty-based cost model.