Cryptocurrency & Digital Assets Flashcards

A Bitcoin miner's profitability is MOST directly affected by which combination of factors?

Answer: Block reward, BTC price, electricity cost, and mining difficulty

Mining profitability is fundamentally driven by revenue (block reward × BTC price) minus costs (electricity × hardware efficiency), adjusted for competitive difficulty.

What is the significance of Bitcoin's 'difficulty adjustment'?

Answer: It recalibrates mining difficulty every ~2 weeks to maintain an average 10-minute block time

Bitcoin's difficulty adjusts approximately every 2,016 blocks (~2 weeks) to ensure blocks are found roughly every 10 minutes regardless of total network hash rate changes.

Which metric BEST indicates whether a cryptocurrency is overbought or oversold relative to its historical price action?

Answer: Relative Strength Index (RSI) measured over a 14-period window

RSI is a momentum oscillator ranging from 0–100; readings above 70 traditionally indicate overbought conditions while readings below 30 suggest oversold conditions.

A crypto trader using 'basis trading' in futures markets is primarily exploiting which relationship?

Answer: The spread between a futures contract price and the spot price of the underlying asset

Basis trading captures the difference (basis) between the futures price and spot price, which converges toward zero as the contract approaches expiration.

What is 'wash trading' in crypto markets and why is it problematic?

Answer: Simultaneously buying and selling an asset to artificially inflate reported trading volume

Wash trading creates illusory volume by trading with oneself, misleading investors about a token's true liquidity and demand while potentially being used for market manipulation.

In the context of crypto on-chain analytics, what does a high 'exchange reserve' typically signal?

Answer: Investors are moving assets to exchanges, potentially indicating upcoming selling pressure

Rising exchange reserves suggest holders are depositing crypto to exchanges in preparation for selling, which traders monitor as a potential bearish on-chain signal.

What distinguishes a 'Layer 2' scaling solution from a 'sidechain' in the crypto ecosystem?

Answer: Layer 2 solutions process transactions off-chain but inherit security from the base layer, while sidechains have their own independent consensus

Layer 2 solutions like rollups derive their security guarantees from Ethereum's base layer, while sidechains maintain their own separate validator sets and consensus mechanisms.