Topic: ASICs are the reason the price is dropping, and it will not stop. (Read 5243 times)

I think were just seeing the deflation of the bubble as hype has died down the amount of dollars offered on exchanges to buy coins has declined precipitously.  This graph is the single most important graph for understanding BTC.

http://www.bitcoinx.com/charts1/depth_mtgox.png

The value of BTC is almost always equal to the dollar depth divided by the coin depth, as coin depth increases or dollar depth declines then the exchange rate will fall.  Dollar depth peeked in mid May and has been on a steady decline punctuated by some sharp drops and then a temporary bulge during the Gox withdraw black-out.  Coin depth was in decline right up to the day of the peak and has been rising steadily since late May.

In the end the value of BTC is determined by the daily flow of dollars willing to invest permanently in BTC.  At the start of the year before the latest bubble that figure was around $100,000 and maintained a price of ~$15.  The sustainable price is directly proportional to the sustained investment rate divided by coins offered, but it is very likely that only a tiny fractions of new coins are being offered for sale and virtually no old coins.  Their could be some effect if ASIC miners are more or less inclined to sell their coins then GPU miners but if anything I suspect GPU miners had to sell more due to their high marginal electricity costs and the primary driver of current exchange rate declines are on the demand side.

This is a question that is amenable to study, just identify coins mined by ASIC miner and compare how many of them have passed through an exchange vs the remaining miners.

Nature abhors a vacuum

Economics abhors a magic machine that prints money.

Here's what the network will look like at the end of 2013.  Here's what the exchange rate will be set (forced) to by ASICminer and the few others fighting over ASICminer's scraps dumping their coins desperately trying to claw their way to make ROI

Incoming hashrates:

ASICminer = 800 - 1000 TH
Avalon Chips = 300 TH
Avalon Batch 2 = 30 TH
KNCMiner=  200 - 400 TH
BFL = 100 - 1000 TH

Hash rate : 1430 TH/sec - 2730 TH/sec

Difficulty : 203396803 - 388302987


If ROI is fast (i.e. meets 100% ROI in less than a year) because exchange rate is good, difficulty will go up to compensate as people want to buy magic money making machines

if exchange rate is sane, difficulty will not go up because ROI is normal, i.e. one year.  This is what is happening now.  This is what will continue to happen.  So let's see what the exchange rate will be to make ROI sane @ 1 year


Marginal rate for plebs to buy hardware (KNC miner) : 17,500$ per TH/sec.

Price of BTC if set by plebs

Low diff: 49$
Max diff: 93$

Marginal rate for ASICminer to buy hardware : <10,000$ per TH/sec.  We'll be conservative and use 10,000$.  In reality it's probably closer to 5,000$, which means halve these numbers.

Price of BTC when set by ASICminer

Low diff: 11$
Max diff: 21$


Asicminer controls the price of bitcoin.  They are the reason the price has dropped.  It is impossible for anyone to get ANYWHERE near their level of efficiency except the ASIC designers themselves.  All of who currently charge an order of magnitude more for their chips than they actually pay for them.  ASICminer can get their chips for pennies on the dollar compared to you, and pays next to nothing for their industrial electricity.

There is nowhere near enough demand to buy coins to make up for the massive amount mined and dumped on a constant basis.  The exchange rate will continue to plummet until the value of dumped coins actually meets the amount of money flowing in for goods and services (practically non-existant at this time.)

And as the price drops nobody who isn't an idiot will consider holding coins as an investment

TL;DR - Unless YOU are ASICMiner, or you got an ASIC already (Avalon Batch #1) - You are screwed.  No, don't buy coins either, the price is going to keep dropping.

Oh, bonus points.  They EASILY have enough hardware to 51% the network.  They could break 75%.

Difficulty will skyrocket regardless. This will make Bitcoin network more secure, then even more secure then producers will jump to the next generation of ASIC chips and the cycle will repeat itself.

Do not forget that there are at least half a dozen of independent producers rushing to produce better and better ASIC miners ASAP. Many of those already invested loads of money into technology and about to start producing mass quantities of chips as soon as they can. In fact some are already in advanced stages of producing next generation of chips and expect to tap out in early Fall of 2013.

Expect ASIC miners to be cheap as dirt and in plentiful supply and not profitable to run anywhere but in places with free or very cheap electricity. This is inevitable.

OP's theory of ROI influence on Bitcoin price makes no sense. The only thing Bitcoin price depends on are network security and adoption level. Both of which BTW rise exponentially and mass production of mining devices drives difficulty that drives security and this so some degree drives Bitcoin price and adoption.

It appears that some "Bitcoin Miners" simply lose ability of independent rational thought when driven out of marketplace by newcomers. This is what causing prices to drop, not proliferation of the ASIC devices directly.

But this hysteria will pass with time.

crumbs,

I was using gold prices from 1972 and blurted that out quickly this morning without proofing. Replace the 30 years with 40 years and the rest is valid. So, you're right, people have different ideas of what a store of value is. And everything has to exist for less than 5 years before it can exist for 5 years. So, how is bitcoin a non-starter? Edit: Even if you look at the past four years, from inception until now, bitcoin has absolutely been an excellent store of value. Maybe we can just agree to disagree.

You assume all miners have the same intention of coins.

GPU miners held coins.

ASIC miners sell coins.

The market is so small that the 3600 coins per day mined has a massive effect on it.

Yeah, I totally disagree with the newfound gold thing, but whatever.

What I find a good store of value?  Well, I guess a perfect store of value doesn't exist, people can always want or not want certain stuff in the future, production processes can always suddenly become a lot more efficient etc. .  Honestly, if bitcoin works out and there is no competitor to replace it, I would say it is has the properties to be the best store of value so far, although we are far too early for it perform that function reliable. The best ones I can think of now are gold, oil/gasoline, silver, alcohol, wood, base metals, tobacco, salt ....

What is your definition/example of a store of value?

Edit:  And sure, if gold was found 4 years ago it would be a godawful store of value.  Worse than it is today.
What do *you* consider a good store of value, so we can start somewhere? Honest question.

I think we might have had this discussion before.  

If gold had been discovered 4 years ago, you would say that it didn't have the properties to serve as a store of value?  (or whatever else you believe is a store of value, since you don't seem to think gold functions as one)

At minimum, a 5 year chart should be used to see if something is a good store of value. Bitcoin hasn't even existed for 5 years.

Then how could it be a great store of value?@!

I would argue that bitcoin is definitely not fiat money. While government law and regulation does influence bitcoin's value and circulation, it does not create bitcoin's value.

In other words, during the last month Bitcoin's ability to store value & its usefulness for commerce has HALVED?  Not sure if that's what i'd call a great store of value