The larger the growth rate, and the larger the time lag between the investment in growth and the return on that growth (relative to the growth rate), naturally the larger the overshoot.
... and we are headed for overshoot.
There will likely be an overshoot - but only if price levels grow slower than hashrate. One scenario where an overshoot may be avoided is when the friction to scale is sufficiently large and/or jurisdictions interfere with the deployment or the sale of new hardware. Companies who are able to minimize this friction will be the ones who benefit the most from the network growth.
Since BTC mining is an "embarrassingly parallel" computational problem (
http://en.wikipedia.org/wiki/Embarrassingly_parallel), and since the hardware manufacturing requirements for miners pale in comparison to the size of the market for traditional electronic devices, I cannot anticipate much friction to scale. Perhaps single entities - like AM or ActiveMining or whatever - will be unable to scale because of logistical reasons, but the thousands of individuals buying Baby Jets or Bitfury boards will have no trouble.
Furthermore, there is a
huge difference in electricity prices by region, something FC has not acted to take advantage of, but other actors have. This will encourage the overshoot scenario (in profit terms) for those individuals who have not exploited cheaper regions.
I agree that there is the possibility of regulatory interference, but predicting that is nigh impossible, and I seriously doubt a single region's regulation can stop this train.
In industry, we deal with overshoot in situations where the setpoint (difficulty) is changing with cascaded PID controllers (
http://en.wikipedia.org/wiki/PID_controller). That produces a damped scenario. The controls in the ASIC market (rational actors) are equivalent to a single PID controller, and we are headed for overshoot.
I disagree. I think there is solid proof out there that a great portion of the mining community has different assumptions about the market - ranging from expert to naive, from optimistic to pessimistic. This causes the mining investments to more or less experience an expectation value, i.e. the smart money is moving in or out first in the right direction.
Supplier companies like ASICMINER are facilitators in the market and just need to make sure that
a) they are a competitive option for getting invested in mining
b) survive times of depression in mining (hibernation ability), e.g. caused by the bitcoin price to collapse below production costs
I see a lot of companies out there striving for a). It will be interesting to see how many companies are prepared for b).
This market is irrational and I do not believe it reaches reasonable equilibrium expectation values. Here is why:
In traditional equity markets, the "expert investors" control a much larger portion of the equity, because they have been previously successful and profited, whereas the novices tend to lose money and do not exert as much force.
However, BTC is an immature currency, and AM shares have exploded from very inexpensive to very valuable. Many of the people who bought in at AM's IPO (or early in the run-up) were unsophisticated. Now they control a large amount of equity and fail to price things in - especially because they are going to be in an extremely optimistic mindset after such a large return on their investments. We are witnessing a strange irrational market that is the product of a non-equilibrium state. It will eventually adjust as more sophisticated actors profit from the irrationality.
I do not believe AM will stop benefiting from its position as a market facilitator, but it is
vastly overvalued.
