Topic: Difficulty and market price... (Read 520 times)

Here is what I think:

There are two costs that affect mining, the cost of the power and the cost of the equipment. If these costs rise, then miners will mine less and the difficulty will go down. If they fall, then miners will mine more and difficulty will go up. Costs are in terms of BTC because that is what miners mine.

Power costs:

The cost of power is significant to GPU miners. As the cost of power rises you will see GPU miners shutting down. However, ASIC mining uses 1/100 of the power as GPU mining, and currently he cost of power is insignificant to ASIC miners. So, the effect of the value of BTC is less and less a factor in terms of cost of power (for now).

Equipment costs:

Most equipment coming online now has been preordered, and since the equipment has been paid for, there is no reason not to mine with it regardless of the value of BTC. In general, time between when the equipment is bought and when it comes online causes a lag in the effect on difficulty..

If the value of BTC is expected to go lower, the difficulty will drop eventually as less equipment is sold because the value of mining is lower. On the other hand, lower demand and better technology will cause equipment prices to drop in terms of cost per hash and that will counter the effect of a lower BTC value.

In short,

1. Power costs are currently negligible for ASIC mining.
2. Lead times cause a lag in the effect of equipment cost on difficulty.
3. Falling BTC value lowers the value of the mining, and difficulty falls.
3. Falling equipment costs push difficulty up even if the value of BTC drops.

Difficulty keeps growing because we are in the middle of a technology change (GPU&FPGA -> ASIC) and mining with the new technology is still lucrative


I don't know if it will be "tumbling down", but you can bet that many miners will have to shut their rigs off, and will never recover their initial investment in BTC.

This already happened in both 2011 and 2012, so nothing new under the sun.. The mining market adjusts itself so mining is only marginally profitable, except during notable exceptions as we just had from February to now for the few owners of ASIC miners.

Nevertheless, the limited window in which ASIC mining was wildly profitable is closing right now.

Why?
They both should follow the same trend.


Let's assume you have a very low difficulty, a lot of miners will start mining, and difficulty => price.
I would say that price and difficult should follow the same trend, but it's difficult to say which one follows this one.
I think that difficulty is the first, because it is basically what miners do, and price has to follow it (?)

Hmmm

Miners are individuals with long term bitcoin prospects. I don't think a short term bearish market on BTC price is enough disincentive to hang up their rather expensive hardware they invested in and waited for with their eyes on the prize. So for that reason I don't think that difficulty is lagging behind price.

Do you mean that the price of mining hardware is lagging behind difficulty? Profit and the secret to a self sustainable mining program seems to favour the early birds in pre-orders. And for these guys there seems to have been good return from their mining equipment. There is definitely the other side of the coin where late comers find themselves burnt.

I think the question is- where is this line of profitability? Will it favour the miners more once the hardware mining industry becomes more competitive?

Traditional wisdom says that price does not follow difficulty.  If anything, it is the other way round and difficulty follows price as mining becomes more lucrative.

So why has the somewhat bearish market of the last couple of months seen not only the highest difficulties on record, but also the largest difficulty jumps?

Is the difficulty lagging behind the price? and if so, is the whole ASIC mining scene going to come tumbling down as people realize they have been scammed with effectively useless devices for which they will never recover their initial investment?

Discuss...