Gold can theoretically fall below its mining cost, and mining would just stop - there's a lot of gold lying around in storage, and only a fraction of total gold is being consumed by industry. The lack of new supply would be driving the price up, but it's still possible that a strong downward force could overwhelm it. For example, humanity could decide that it no longer views gold as a store of value, and gold's value would only be dictated by its use in industry.
For Bitcoin falling far below the cost of producing a block could be devastating, because difficulty adjustment happens once per 2016 blocks, so someone would have to mine at a loss the blocks that are needed to reach difficulty adjustment. This could mean that a block would be mined once per many hours or even days. This would contribute to panic and fees would skyrocket to insane levels.
Topic: Bitcoins have non-speculative value, don't they? - page 2. (Read 456 times)
However, I don't see how's that relevant to the title.
The title may be a little goofy because I'm mimicking the language the author is using in chapter 3 without fully understanding his definitions. I'm open to suggestions, if you have any.
It seems franky1 and I think the same way, because my intuition also tells me that there is an "underlying" value based on the cost of electricity and the size of the block reward, and on top of that there is a "speculative" value that bounces around based on trading activity.
Based on some of the other responses, I guess I didn't express myself very well. I'm aware of bitcoin's supply schedule and the difficulty adjustment that keeps blocks being mined roughly every 10 minutes. So I know that the supply of bitcoins has nothing to do with price or with how few/many miners there are.
I suppose a simpler way to ask my question would be this: If (according to the book I'm reading) the fact that there are real monetary costs associated with "producing" gold means that there is a kind of "parachute" that helps to prevent its price from falling too low, then why doesn't the electricity cost of mining blocks have exactly the same effect on bitcoin?
Edit: Just want to thank everyone for their responses. There's a lot of knowledge on this forum and I'm grateful for everyone's input.
The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.
Scarcity is vital to valuation, but it doesn't just function as a system you start and stop in response to the market. Gold mining rigs can work for a number of years and takes lots of money to set up. It's not a system that can be readily opened and closed in response to changes in the market, CMIIW.The mechanism being that if the price falls too low1 then selling would slow down in response and supply2 would decrease therefore increasing price.
Bitcoin's value usually falls low in response to high sell offs and is usually direct result of it. Where holders panic sell to cut their losses.Also, market supply, i.e, coins available for purchase on exchanges are quite different from total supply, which is determined by each completed block.
[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.
If willingness to sell reduces against demand, then that should create a support for the price, and prevent further dumps. 
alot of people (like blackhatcoiner) have a narrow mind view and only see the PRICE as the only metric..
they have been told its not the case but yet it may take them longer to think about it..
there is a underlying value (not seen in the market) this value is NOT the market price.
its a number that sits below the market price
EG golds VALUE is not the ~$1,700 currently.. golds underlying value is about $900 at the moment
in short if everyone could mine gold for $1 using a spoon and a coffee filter in their back yard. the market price would not be $1700. it would be $2-$5. value in this case is not the $2-$5k speculative market rate. the value would be the $1 that no one can mine for below and be willing to sell for below.
but because its hard to get gold through mining with it costing over $900 to mine gold. gold miners wont sell for less than $900. so they sell for profit. and the speculative sentiment about how much profit they can make and/or how much demand there is and/or competition is the stuff of speculations ABOVE the value.
when there is too much speculation above value and the price goes too high(premium) totally outside of logic then thats the bubble area of a market.
bitcoin is the same in this respect. if it were PoS where it only costs pennies to signblocks the value would be pennies and the speculative market above that would be the price, where by the price is speculative and volatile due to many factors of sentiment and profitability dependant on supply and demand.
(many people are going to learn this the hard way when ethereum merges to become PoS and the value drops to a few dollars. the speculative price will correct with it.)
bitcoin is PoW so has a higher cost than PoS so already its better value than PoS. and with no miner on the planet able to mine this year for a few dolars. bitcoins value is no where near a few dollar value.
its actually much much higher(way more than $10k)
finding the most efficient hashrate miner and the best rate electric and dividing up that miners hardware cost over its life cycle down to a per coin cost. also also adding the electric cost per coin by comparing that to the network hashrate and coins it is rewarded you can calculate the best rate value per coin of mining bitcoin. the bottom rate no one else can beat. and thats the value line no one on the planet can beat. meaning no one is selling below.
the stuff above that is the less efficient miners or the ones that want to hold out for higher prices to sell or the many other factors of supply and demand..(speculation)
..
as for the factors of shifting this value amount.. well if the more speculative area stuff, like the more expensive miners switch off. then bigger slices of the reward are giving to the remaining efficient miners so that they can get more coin meaning their cost per coin goes down meaning more profit per coin meaning able to sell for less and still break even.
usually miners with less efficient asics switch off when the market price speculates below their higher price mine cost so it ends up not cheap to mine.. however when switching off they can also then become buyers as its cheaper to buy rather then mine which can speculate the price upwards. thus widening the gap between price and value. in both directions..(alot of game theory to try to analyse the value/price gap due to actions of the network. alot of variables to account for. too many to describe)
this is different for gold though.. when prices of gold on markets go down. gold miners stop.. whereby there just is less gold being made. its not a case of the gold gets passed to the remaining miners. it just means there is less gold. and so that affects the supply and demand. causing a price rise but not causing a value dip
difference being that stopping gold mining causes a supply shortage thus the demand can cause a PRICE increase.
in bitcoin stopping mining means the supply shifts to the remaining miners meaning they get a bonus meaning this causes their costs/value number to decrease meaning they can sell for less. while also possibly having more buyers buying instead of mining. causing the price rise.
.. gold/bitcoin underlying value is not a fixed rate. its not even a fixed ratio of price:value. it is different to the price and the value does change due so circumstances. but the underlying value does not change by same the whimsy/speed/reason or volatility of price. value does change but not as fast as the price.
and in many cases even if the market is heading in a downward motion the value hardly moves and sometimes continues in its upward motion just at a slower rate. (many factors at play too many to describe)
it requires alot of things to truly push down the value of bitcoins underlying value amount. and even now with all of the 2022 price drama.. bitcoins VALUE is still higher then the VALUE of 2020-2021. even though the PRICE is lower then the 2020-2021 PRICE
bitcoins value is not the ATH. its a number that sits underneath near the ATL of a longer term period.. the point no one wants to sell below and hasnt sold below on a long period of time, where its unlikely to sell below any time soon
they have been told its not the case but yet it may take them longer to think about it..
there is a underlying value (not seen in the market) this value is NOT the market price.
its a number that sits below the market price
EG golds VALUE is not the ~$1,700 currently.. golds underlying value is about $900 at the moment
in short if everyone could mine gold for $1 using a spoon and a coffee filter in their back yard. the market price would not be $1700. it would be $2-$5. value in this case is not the $2-$5k speculative market rate. the value would be the $1 that no one can mine for below and be willing to sell for below.
but because its hard to get gold through mining with it costing over $900 to mine gold. gold miners wont sell for less than $900. so they sell for profit. and the speculative sentiment about how much profit they can make and/or how much demand there is and/or competition is the stuff of speculations ABOVE the value.
when there is too much speculation above value and the price goes too high(premium) totally outside of logic then thats the bubble area of a market.
bitcoin is the same in this respect. if it were PoS where it only costs pennies to signblocks the value would be pennies and the speculative market above that would be the price, where by the price is speculative and volatile due to many factors of sentiment and profitability dependant on supply and demand.
(many people are going to learn this the hard way when ethereum merges to become PoS and the value drops to a few dollars. the speculative price will correct with it.)
bitcoin is PoW so has a higher cost than PoS so already its better value than PoS. and with no miner on the planet able to mine this year for a few dolars. bitcoins value is no where near a few dollar value.
its actually much much higher(way more than $10k)
finding the most efficient hashrate miner and the best rate electric and dividing up that miners hardware cost over its life cycle down to a per coin cost. also also adding the electric cost per coin by comparing that to the network hashrate and coins it is rewarded you can calculate the best rate value per coin of mining bitcoin. the bottom rate no one else can beat. and thats the value line no one on the planet can beat. meaning no one is selling below.
the stuff above that is the less efficient miners or the ones that want to hold out for higher prices to sell or the many other factors of supply and demand..(speculation)
..
as for the factors of shifting this value amount.. well if the more speculative area stuff, like the more expensive miners switch off. then bigger slices of the reward are giving to the remaining efficient miners so that they can get more coin meaning their cost per coin goes down meaning more profit per coin meaning able to sell for less and still break even.
usually miners with less efficient asics switch off when the market price speculates below their higher price mine cost so it ends up not cheap to mine.. however when switching off they can also then become buyers as its cheaper to buy rather then mine which can speculate the price upwards. thus widening the gap between price and value. in both directions..(alot of game theory to try to analyse the value/price gap due to actions of the network. alot of variables to account for. too many to describe)
this is different for gold though.. when prices of gold on markets go down. gold miners stop.. whereby there just is less gold being made. its not a case of the gold gets passed to the remaining miners. it just means there is less gold. and so that affects the supply and demand. causing a price rise but not causing a value dip
difference being that stopping gold mining causes a supply shortage thus the demand can cause a PRICE increase.
in bitcoin stopping mining means the supply shifts to the remaining miners meaning they get a bonus meaning this causes their costs/value number to decrease meaning they can sell for less. while also possibly having more buyers buying instead of mining. causing the price rise.
.. gold/bitcoin underlying value is not a fixed rate. its not even a fixed ratio of price:value. it is different to the price and the value does change due so circumstances. but the underlying value does not change by same the whimsy/speed/reason or volatility of price. value does change but not as fast as the price.
and in many cases even if the market is heading in a downward motion the value hardly moves and sometimes continues in its upward motion just at a slower rate. (many factors at play too many to describe)
it requires alot of things to truly push down the value of bitcoins underlying value amount. and even now with all of the 2022 price drama.. bitcoins VALUE is still higher then the VALUE of 2020-2021. even though the PRICE is lower then the 2020-2021 PRICE
bitcoins value is not the ATH. its a number that sits underneath near the ATL of a longer term period.. the point no one wants to sell below and hasnt sold below on a long period of time, where its unlikely to sell below any time soon
Comparing bitcoin to gold is actually pretty good, they're both valueless and we humans with our myopic self preservation perspective see it as a precious commodity. So to answer your question about bitcoin's intrinsic value, I don't think it doesn't have any, try to make a monkey choose between a banana and bitcoin, you'll probably know the results.
That's a sad analogy. Bitcoin can never replace a banana, the monkey won't need a currency but to someone who spends to live another day he will need the money.
Bitcoin is supposedly to be use to replace the legacy fiat system which is why this is a revolution against it which to an activist we hope BTC replaces fiat currencies including EUR, USD or YEN.That is why we as buyers and sellers put an intrinsic value to BTC and its determined through the market.
I've been numerous speculations on how BTC price can't fall below a certain level because then mining wouldn't be profitable, and the op's question reminds me of that. The thing is, that's life, and yeah, something can become unprofitable, people can lose money, and some will go out of business while others would continue operating despite losing money, hoping it would all be worth it in the end. Mining gold requires resources, and mining Bitcoin requires them as well. But we don't value gold based on how hard it is to mine it, and the same is true for Bitcoin. The difference is that with gold a mining deposit can be suddenly discovered and an influx of gold can increase unexpectedly, while mining of Bitcoin is happening at a strict rate, and we also know the total supply whereas we can't know gold's total supply.
Don't do Binance good. Here's some better source: https://en.bitcoin.it/wiki/Controlled_supply
Bitcoin Wiki should be one of first resources we should look at when we're finding something about Bitcoin.I know a very helpful article from Jameson Lopp.
- How is the 21 Million Bitcoin Cap Defined and Enforced?
- Interesting fact is many points in that article was discussed on the forum months or years ago. I don't say Jameson stole ideas of forum members as fact is fact but it proves that the forum has many knowledgeable members
My question is: Isn't there something very similar happening with bitcoin too?
No, there isn't. That's why it's so volatile. There's no change in the supply that re-balances the change in demand, so that the equilibrium price remains somewhat more stable. Supply is completely inelastic.However, I don't see how's that relevant to the title.
For more info: https://academy.binance.com/en/halving
Don't do Binance good. Here's some better source: https://en.bitcoin.it/wiki/Controlled_supply 
My question is: Isn't there something very similar happening with bitcoin too?
Not going to happen. The less miners, the more bitcoin existing miners get. On the case of bitcoin though, the bitcoin mined per block is capped anyway. So it's not like there are more bitcoin that gets mined when there are more miners. For more info: https://academy.binance.com/en/halvingThe mechanism being that if the price falls too low1 then selling would slow down in response and supply2 would decrease therefore increasing price.
[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.
Maybe, but we can't know for sure. People sell bitcoin for multiple variety of reasons. Certain news rake up more sellers than other news, depending on how dire the news is.[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.
We could also say that as price goes down, long-term investors buy. But then again, it depends. How much capital do buyers have compared to sellers? If there are more bitcoin being sold than being bought, then the price would go down anyway.
I'm busy reading "Understanding Bitcoin" by Pedro Franco and have a question for the forum.
In chapter 3 he compares bitcoin to gold and says that one of gold's advantages is that the cost of production (physical mining) forms a support for price levels that can help to prevent acute down-trends.
The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.
My question is: Isn't there something very similar happening with bitcoin too?
The mechanism being that if the price falls too low1 then selling would slow down in response and supply2 would decrease therefore increasing price.
I have never studied economics, so maybe I'm missing something obvious. I would appreciate anyone's thoughts on this, thank you!
[1] Below the "minting" cost, which is considerable and increases every "halving".
[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.
In chapter 3 he compares bitcoin to gold and says that one of gold's advantages is that the cost of production (physical mining) forms a support for price levels that can help to prevent acute down-trends.
The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.
My question is: Isn't there something very similar happening with bitcoin too?
The mechanism being that if the price falls too low1 then selling would slow down in response and supply2 would decrease therefore increasing price.
I have never studied economics, so maybe I'm missing something obvious. I would appreciate anyone's thoughts on this, thank you!
[1] Below the "minting" cost, which is considerable and increases every "halving".
[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.
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