Topic: A lot of talk about $50, but the very bottom may be lower (Read 7913 times)

My personal estimate for the next low point in 2013 or 2014 has been $20 for a while. $30 would not surprise me, but single digits would also not surprise me.

Why? My model of the bitcoin market is that we have a layer of people who actually use bitcoin, people who pay with bitcoins for goods and services. But this layer is thin. I guess, if that were the whole bitcoin market, a bitcoin would carry a single-digit dollar price.

Above that we have a few layers of speculators. There are some long-termists who hold bitcoins for years, regardless of its highs and lows. We have some moderately slow traders. Finally we have the get-rich-quick crowd, some of which write their obvious "BUY!" posts here. They are trend-followers. (Buy, buy! The price is rising. - Sell, sell! The price is falling.) They create the bubbles, of which I expect to see a third one.

It is these latter ones that will now get increasingly nervous. As the price keeps falling, they will sell at a loss, in order to prevent an even greater loss. They will sell right down to the bottom, and that's how it should be, because they have no place in this market and are only damaging the bitcoin idea. Fortunately they will always bankrupt themselves. Unfortunately they will only make room for new speculators, until the entire world has learned its lesson. That will take a third bubble, and a fourth one, perhaps even a fifth one.

The problem for the better speculators, those who buy low and sell high and thereby stabilize the price, is to determine in advance where the price bottom after the last bubble will be.

I think it would be below $10, if it were not for the new, clueless speculators stumbling into the bitcoin market. They will start the next bubble before the previous one is fully deflated, and that is why it is difficult to predict the bottom price.

I am very interested in useful information and ideas that help to predict the bottom more precisely.

$20 - remember, you've read it here first, actually already months ago in some other threads.

$30 is my estimate of a firm bottom for what the demand side of BTC can provide …

We are selfish and care about ourselves and our bank accounts (and food and shelter) more than we care about Bitcoin.  I will admit that readily.

but can't you see that bitcoin would be much better off it you all shut the fuck up and enjoy the ride?

$30 is my estimate of a firm bottom for what the demand side of BTC can provide independent of mining costs, if you believe in a different bottom or indeed any other price just substitute that in the calculation and you will get a different estimate for when ASICs become unprofitable.

$30 is my estimate of a firm bottom for what the demand side of BTC can provide independent of mining costs, if you believe in a different bottom or indeed any other price just substitute that in the calculation and you will get a different estimate for when ASICs become unprofitable.

Isn't there some circular logic going on here?  You are saying unprofitable (or barely profitable) mining will cause selling and the price to drop, but then for your calculations you already assume a lower price to estimate their profitability in the future.  Probably has more to do with the timeframe since mining shouldn't be very profitable forever, but it makes the timeframe estimation a lot less sure, I think.

Excellent fundamental analysis, I tried to formulate the same thoughts here https://bitcointalksearch.org/topic/m.1957530

I think it's key to comprehending this bear market.

Declining profitability of mining presents a miner with three choices, stop mining OR continue to mine while selling most coins to pay for the marginal electricity consumed in mining OR mine at a loss and become a speculator.  Any earlier coins the miner may have hoarded are clearly separate and changes in mining profitability have no effect on decisions to hold or sell those coins.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The combination of ASICs, the block reward reduction to 25 (which immediately cuts in half the flow of new coins and artificially doubles the exchange rate) and a media fueled bubble have destabilized all this and we won't know a stable price until all those factors have faded away.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Declining profitability of mining presents a miner with three choices, stop mining OR continue to mine while selling most coins to pay for the marginal electricity consumed in mining OR mine at a loss and become a speculator.  Any earlier coins the miner may have hoarded are clearly separate and changes in mining profitability have no effect on decisions to hold or sell those coins.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The combination of ASICs, the block reward reduction to 25 (which immediately cuts in half the flow of new coins and artificially doubles the exchange rate) and a media fueled bubble have destabilized all this and we won't know a stable price until all those factors have faded away.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Nobody ever went broke taking profits

Probably the smartest thing on here. Finally found someone that thinks like I do. As an ASIC Miner now, I have two options, mine and hoard and sell a year from now, or mine and sell now, and hope to "catch" the bottom to buy back in. Additionally, I have the problem of infrastructure costs, as I need real estate and a facility to host the miners. Alternatively, I could sell the miners now and get some coin up front, which again, I can either hoard for selling probably close to a year from now as the price starts to go back up, OR I can sell it now and hope to buy back in when the price bottoms out.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

BTC can decline simply from the flow of newly minted coins accumulating on the bid side of the ledger without anyone 'panicking' and choosing to unload long-held coin hoards.  The price of BTC very very closely follows the bid/offer ratio, any change of the number of offered dollars or number of offered Bitcoins has a decided impact on exchange rates.  Each day nearly 4K BTCs are generated (during these times of slightly faster blocks as difficulty is constantly trying to catch up), so unless ALL 4K coins are bought and permanently removed from that side of the ledger you will see a value decline.

In a broader sense BTC valuation is supported by ONLY the daily inflow of new dollars to buy up new coins.  E-commerce transactions have no real price supporting ability because dollars are just transiting through BTC at the volatile exchange rates with both parties buys and sells canceling each other out.  At 4K BTC a day we need to see $400,000 a day be expended to buy coins, the current bid depth of ~10 million can thus absorb about 1 month worth of coins, likewise the ~100K BTCs offered represents about a month worth of mining.

Now one must also consider that miners, particularly ASIC miners are in a position to 'pre-hoard' most if not all of their coins due to their low production costs (ware as a GPU miner at the margin of profitability is presumably selling more coins to cover electricity costs).  Also the typical ASIC buyer is hyper bullish on BTC.  So it is very likely that far less then 4K coins are even flowing into the exchanges and any sell off of BTC happening now are occasional profit takings from old retired whales or small holding non miners who have lost confidence.

At some point enough profitability is squeezed out of the mining that the option of pre-hoarding will end and we will see full liquidation of new coins, only then will we find the bottom.  And it will also be AFTER HASH TOP, as in 2011 the final stage of the bubbles deflation occurs after miners realize they have over extended and their hardware is no longer profitable and some of them shutdown.  Were no ware near the Hash top as it would be proceeded by a slowdown in hash rate growth, this is because of the inertia in the ASIC shipments and their high efficiency which means they are still profitably to run now (but probably not to order).  I expect the Hash top in 3-6 months and the ultimate market bottom ~3 months after that.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The "mining ROI is dropping so I'm better off buying" is a fallacy. Sure increased demand and lower supply makes the price shoot up in the short term but that is not sustainable and just leads to speculative bubbles.

It's like company layoffs, it might save them some money in the short term meaning higher profits, but it's usually sign the company is not doing so well to begin with...

Buying BTC and doing nothing with them does not create actual value. Value will come from having an economy built around bitcoin.