I second the need for a log scale on the first graph. I also want to point out that the fact that price and difficulty are both rising exponentially does not indicate correlation.
I believe that your assumption that difficulty affects price is incorrect, and that your graphs do not support your assumption. Correlation is not causation. You can't assume that difficulty affect price just because there is a correlation.
Simple logic demonstrates that there is a loose correlation between price and difficulty, and that difficulty depends on price (and not the other way around). Simply stated, the total hash rate (and thus the difficulty) rises or falls depending on the profitability of mining. Miners (at least the rational ones) won't mine if it is not profitable. If the price falls, miners will stop mining and the difficulty will fall. If the price rises, miners will mine more and the difficulty will rise.
What complicates the correlation is the change in the efficiency of mining in terms of the cost. Because of advances in mining technology, the efficiency of mining has increased dramatically, and in waves. If you adjust for the change in efficiency I'm sure you will see a correlation.
It seems there's a direct correlation (as expected) between Bitcoin price and difficulty. I assumed that difficulty is one of the
biggest factors that affects bitcoin's price, and the graphs seems to support this assumption. What's more interesting is the graph
that compares price and difficulty/price. Do you think it is reasonable to indicate whether bitcoin is overpriced from studying this graph?
biggest factors that affects bitcoin's price, and the graphs seems to support this assumption. What's more interesting is the graph
that compares price and difficulty/price. Do you think it is reasonable to indicate whether bitcoin is overpriced from studying this graph?
I believe that your assumption that difficulty affects price is incorrect, and that your graphs do not support your assumption. Correlation is not causation. You can't assume that difficulty affect price just because there is a correlation.
Simple logic demonstrates that there is a loose correlation between price and difficulty, and that difficulty depends on price (and not the other way around). Simply stated, the total hash rate (and thus the difficulty) rises or falls depending on the profitability of mining. Miners (at least the rational ones) won't mine if it is not profitable. If the price falls, miners will stop mining and the difficulty will fall. If the price rises, miners will mine more and the difficulty will rise.
What complicates the correlation is the change in the efficiency of mining in terms of the cost. Because of advances in mining technology, the efficiency of mining has increased dramatically, and in waves. If you adjust for the change in efficiency I'm sure you will see a correlation.
i'm new to btc so i must think again about it. But i find a little flaw in this kind of reasoning: mininig is always profitable. If difficulty changes you will always keep a mark up for the traders who do not mine. so there will be always an incentive to mine and increase the overall difficulty giving momentum to the price.
Meanwhile, you can zoom in to the graph to see the data better. 