Fundamental Analysis of BTC, is BTC overvalued? - page 2.

kjj

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Quote from: BitterTea on May 26, 2011, 02:25:23 PM

Quote from: TheKoziTwo on May 26, 2011, 02:19:44 PM

kjj:
I think he is saying that if you can buy 1 btc for $0.25 from A and sell 1 btc for $9 to B, people will buy like crazy from A until A has raised the price to $9.

No, he said that more miners = lower bitcoin exchange rate.

Unless he was saying that more miners = higher difficulty = higher costs, in a very difficult to understand way?

The two are more or less equivalent. It doesn't matter much if the cost of production rises or the value of exchange falls. Over time, the spreads will tend to fall. The only time spreads don't fall is when production is limited in some way. Dollars are limited, in a way, so they maintain value above the cost of production. What picollo7 refuses to acknowledge is that BTC production is also limited, and so they can maintain a value above their cost of production.

I've been trying to lead him by the nose to this understanding, but he's refused my efforts.

BitterTea

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Quote from: TheKoziTwo on May 26, 2011, 02:19:44 PM

kjj:
I think he is saying that if you can buy 1 btc for $0.25 from A and sell 1 btc for $9 to B, people will buy like crazy from A until A has raised the price to $9.

No, he said that more miners = lower bitcoin exchange rate.

Unless he was saying that more miners = higher difficulty = higher costs, in a very difficult to understand way?

TheKoziTwo

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kjj:
I think he is saying that if you can buy 1 btc for $0.25 from A and sell 1 btc for $9 to B, people will buy like crazy from A until A has raised the price to $9.

kjj

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Quote from: picollo7 on May 26, 2011, 02:06:47 PM

Just thought I'd say, the difficulty jumped 78 percent. I predicted 75 percent. Not bad eh? XD

Quote from: ene on May 26, 2011, 01:35:00 PM

Quote from: picollo7 on May 26, 2011, 01:06:00 PM

Quote from: ene on May 26, 2011, 01:02:59 PM

Quote from: picollo7 on May 26, 2011, 11:43:08 AM

Ugh, you BTC flag wavers are TOUCHY! It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition. If you don't even understand this there isn't any point in talking further.

It doesn't matter how many "producers" are in the marketplace because whether there's one or one thousand, bitcoins are added to the supply at the same rate. 50 BTC/block, 6 blocks/hour.

This is not true in the short run. If you understand how the system works, the difficulty is ALWAYS lagging growth. Currently, we produce about 13.33 blocks per hour. bitcoinwatch.com Besides, you are missing the point. Please go back and read if you wish to usefully contribute.

It's funny that you mention the short run where in your very first post you said you wanted to look at the long run. It's you who is missing the point.

Could you explain this?

Quote

It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition.

You say that other producers entering the marketplace will cause the price to go down. Either you mean it will decrease the demand or you mean it will increase the supply. But regardless of how many producers are in the marketplace, bitcoins will be created at the same rate. Adding more producers does not cause the supply to increase and price to lower!

Nope, I’m looking at the next two months. That’s short run. I don’t say other producers entering the market place will cause it to go down. Again, missed the point, go back and read.

smooth

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Quote from: ene on May 26, 2011, 01:35:00 PM

You say that other producers entering the marketplace will cause the price to go down. Either you mean it will decrease the demand or you mean it will increase the supply. But regardless of how many producers are in the marketplace, bitcoins will be created at the same rate. Adding more producers does not cause the supply to increase and price to lower!

Bitcoin is more like a trading market where there is no fixed set of "suppliers" and "customers." There are buyers and sellers, and any given trader can move from one side to the other at various times without needing to build a factory or something. Cheap mining does not increase supply much in the traditional sense, but it does decrease demand, because would-be buyers can mine instead (substitution).

Cheap mining does increase supply somewhat, because difficulty increases as mining increases. But difficulty is calculated in hindsight, so with increasing mining the block rate goes up. Of course there is a fixed total supply of BTC so any increase in the block rate now means a decrease in the block rate at some point in the future.

picollo7

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Just thought I'd say, the difficulty jumped 78 percent. I predicted 75 percent. Not bad eh? XD

Quote from: ene on May 26, 2011, 01:35:00 PM

Quote from: picollo7 on May 26, 2011, 01:06:00 PM

Quote from: ene on May 26, 2011, 01:02:59 PM

Quote from: picollo7 on May 26, 2011, 11:43:08 AM

Ugh, you BTC flag wavers are TOUCHY! It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition. If you don't even understand this there isn't any point in talking further.

It doesn't matter how many "producers" are in the marketplace because whether there's one or one thousand, bitcoins are added to the supply at the same rate. 50 BTC/block, 6 blocks/hour.

This is not true in the short run. If you understand how the system works, the difficulty is ALWAYS lagging growth. Currently, we produce about 13.33 blocks per hour. bitcoinwatch.com Besides, you are missing the point. Please go back and read if you wish to usefully contribute.

It's funny that you mention the short run where in your very first post you said you wanted to look at the long run. It's you who is missing the point.

Could you explain this?

Quote

It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition.

You say that other producers entering the marketplace will cause the price to go down. Either you mean it will decrease the demand or you mean it will increase the supply. But regardless of how many producers are in the marketplace, bitcoins will be created at the same rate. Adding more producers does not cause the supply to increase and price to lower!

Nope, I’m looking at the next two months. That’s short run. I don’t say other producers entering the market place will cause it to go down. Again, missed the point, go back and read.

ene

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Quote from: picollo7 on May 26, 2011, 01:06:00 PM

Quote from: ene on May 26, 2011, 01:02:59 PM

Quote from: picollo7 on May 26, 2011, 11:43:08 AM

Ugh, you BTC flag wavers are TOUCHY! It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition. If you don't even understand this there isn't any point in talking further.

It doesn't matter how many "producers" are in the marketplace because whether there's one or one thousand, bitcoins are added to the supply at the same rate. 50 BTC/block, 6 blocks/hour.

This is not true in the short run. If you understand how the system works, the difficulty is ALWAYS lagging growth. Currently, we produce about 13.33 blocks per hour. bitcoinwatch.com Besides, you are missing the point. Please go back and read if you wish to usefully contribute.

It's funny that you mention the short run where in your very first post you said you wanted to look at the long run. It's you who is missing the point.

Could you explain this?

Quote

It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition.

You say that other producers entering the marketplace will cause the price to go down. Either you mean it will decrease the demand or you mean it will increase the supply. But regardless of how many producers are in the marketplace, bitcoins will be created at the same rate. Adding more producers does not cause the supply to increase and price to lower!

kjj

legendary

Activity: 1302

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What's not what?

picollo7

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It's not. You just apparently have no capability to understand a simple concept.

kjj

legendary

Activity: 1302

Merit: 1026

Quote from: picollo7 on May 26, 2011, 01:03:09 PM

Quote from: Insti on May 26, 2011, 12:56:51 PM

Quote from: picollo7 on May 26, 2011, 12:17:29 PM

Quote from: kjj on May 26, 2011, 12:03:26 PM

Tell me how exchanging my work for dollars creates dollars (or at least gives them value, somehow) while exchanging my work for bitcoins does not.

... Your “challenge” is easily explainable if you understand the facts,

I'm also interested in the answer to this question, could you please list the facts that explain your answer?
Thanks.

This is the complete OPPOSITE of what I said. Again, they both are the same thing, your value for a dollar is what you input to earn it, just like your value for a BTC is what you input to earn it. He is making an argument for argument's sake, not out of an attempt to understand.

Why isn't the value of the dollar the value that the Bureau of Printing and Engraving puts into it? Why is it valued by the user instead of the creator? Now tell me why the exact opposite is true for bitcoins? Why is one currency valued at production cost while the other is valued at exchange cost?

picollo7

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Activity: 25

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Quote from: ene on May 26, 2011, 01:02:59 PM

Quote from: picollo7 on May 26, 2011, 11:43:08 AM

Ugh, you BTC flag wavers are TOUCHY! It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition. If you don't even understand this there isn't any point in talking further.

It doesn't matter how many "producers" are in the marketplace because whether there's one or one thousand, bitcoins are added to the supply at the same rate. 50 BTC/block, 6 blocks/hour.

This is not true in the short run. If you understand how the system works, the difficulty is ALWAYS lagging growth. Currently, we produce about 13.33 blocks per hour. bitcoinwatch.com Besides, you are missing the point. Please go back and read if you wish to usefully contribute.

picollo7

newbie

Activity: 25

Merit: 0

Quote from: Insti on May 26, 2011, 12:56:51 PM

Quote from: picollo7 on May 26, 2011, 12:17:29 PM

Quote from: kjj on May 26, 2011, 12:03:26 PM

Tell me how exchanging my work for dollars creates dollars (or at least gives them value, somehow) while exchanging my work for bitcoins does not.

... Your “challenge” is easily explainable if you understand the facts,

I'm also interested in the answer to this question, could you please list the facts that explain your answer?
Thanks.

This is the complete OPPOSITE of what I said. Again, they both are the same thing, your value for a dollar is what you input to earn it, just like your value for a BTC is what you input to earn it. He is making an argument for argument's sake, not out of an attempt to understand.

ene

newbie

Activity: 42

Merit: 0

Quote from: picollo7 on May 26, 2011, 11:43:08 AM

Ugh, you BTC flag wavers are TOUCHY! It’s simple economics. If you can make a BTC worth 9 bucks for 25 cents, and the barriers to entry are very little, then other producers will keep entering the marketplace until the price equals cost, ie perfect competition. If you don't even understand this there isn't any point in talking further.

It doesn't matter how many "producers" are in the marketplace because whether there's one or one thousand, bitcoins are added to the supply at the same rate. 50 BTC/block, 6 blocks/hour.

Insti

sr. member

Activity: 294

Merit: 252

Firstbits: 1duzy

Quote from: picollo7 on May 26, 2011, 12:17:29 PM

Quote from: kjj on May 26, 2011, 12:03:26 PM

Tell me how exchanging my work for dollars creates dollars (or at least gives them value, somehow) while exchanging my work for bitcoins does not.

... Your “challenge” is easily explainable if you understand the facts,

I'm also interested in the answer to this question, could you please list the facts that explain your answer?
Thanks.

picollo7

newbie

Activity: 25

Merit: 0

Quote from: stic.man on May 26, 2011, 12:42:47 PM

the thing is why are dudes flipping their shit about $9 a month in electricity?

Like I said, my calcs were based on the most efficient computers and at a rate of $.1 per kwh. So if they have more expensive electricity, and less efficient pcs, then that rate can easily go up by a factor of 10. Also, bear in mind, that's only for 1 BTC a day, so for people with farms and stuff, that will go up by however many BTC they're generating.

I made the efficiency assumption because the most efficient miners will reap the most profits, so there is a huge incentive for market entrants to be efficient, esp as difficulty increases.

The whole point is that in perfect competition, price equals marginal cost for the most efficient producer. The BTC mining market is converging toward a perfectly competitive market due to its size and low barrier to entry. So with all that in mind, the inefficiencies will be competed away. This is all in the long term, in the short term, who knows?

fadisaaida

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Quote from: picollo7 on May 26, 2011, 12:34:48 PM

Well the issue with having 10 mining rigs is the cost of capital. That would be like 8 grand. Few people have that kind of scratch lying around. Also, you'd probably make more money directly investing that 8gs than mining.

But yeah, that's exactly my point. The price makes no sense. Please go through the calculations yourself. The whole point of this thread is to arrive at a fundamental value, which very few people seem to want to do, they get offended.

To me, that's signs of irrationality.

while i do agree with you on most of the things, i don't think we can just agree on a value!, unless some of real founders (the very 1st miners) make a stand and try to stabilize the prices with their stock coins, speculations,hoarding will keep happening, and even more , and as long as people at mtgox can place bids/ask without actualy having the order it can still fool new comers ! Ofcourse i assume that the very 1st miners care about the bitcoin itself more than the profit like most of the late coming miners who just waiting for prices to go up and up and up, and they will crash the market once any sign of crash will show up.

stic.man

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the thing is why are dudes flipping their shit about $9 a month in electricity?

picollo7

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Well the issue with having 10 mining rigs is the cost of capital. That would be like 8 grand. Few people have that kind of scratch lying around. Also, you'd probably make more money directly investing that 8gs than mining.

Also, another thing to consider is the difficulty increases, which means that 8 grand of computing power will be worth less every 10 days or so.

But yeah, that's exactly my point. The price makes no sense. Please go through the calculations yourself. The whole point of this thread is to arrive at a fundamental value, which very few people seem to want to do, they get offended.

To me, that's signs of irrationality.

stic.man

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there are dudes talking about some pretty big electric bills which is why I was wondering about the cost to produce each one.

It makes no sense that everyone on this board doesn't have like 10 rigs each mining the shit out of everything if each one is adding only $9/month to their bill.

I'm also wondering why something like this would happen http://techland.time.com/2011/05/23/report-police-confuse-bitcoin-miners-power-use-for-weed-grow-op/

picollo7

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Quote from: stic.man on May 26, 2011, 12:17:02 PM

wait producing a BTC costs only 28 cents a day?

I keep seeing a lot of miners talking about 1 BTC per day on average from the pools. right now thats like 250 bucks a month with today's pricing. their electric bills are only being affected $9/month in order to mine?

Right. I made the assumption that most of the hashing is done by the most efficient computers, assuming mining farms with 6990s produce a majority of the work. The factor is 2.5 megahashes per joule from the mining rig hardware comparison guide. So, if you want to downplay that factor, and say it's only 1.5, then multiply 28 cents by 1.66, so, about 47 cents. Even at 20 percent efficiency of what I estimate, that's about 1.50 per BTC, so the gains are at LEAST 6 bucks per BTC, or at LEAST 400 percent, per DAY. Which is insane, nothing gives you that return, ever, anywhere, which is why the gold rush to mine will continue to skyrocket and drive up the difficulty, AND/OR, there will be a price crash.

Topic: Fundamental Analysis of BTC, is BTC overvalued? - page 2. (Read 14300 times)