Topic: Hashrate VS Price - page 2. (Read 4264 times)

You could say it's less obvious but we both are stuck having to explain the complete divergence occurring this very moment between the two.

But if price breaks up following the hashrate then...  

You could. 

The relationship would be far less obvious... and it seems the price bottomed before the hashrate.
Unfortunately I don't have the tools to make a more detailed graph of this period (at least not for the hashrate).

I'm preparing for the broken window fallacy. 

Really, labor theory of value?

Not exactly.

If it costs you $10k to dig an ounce of gold, it doesn't mean that's the price it will have on the market.
It means you won't mine it unless gold is valued at more than $10k.

Same thing with mining bitcoins.
If it becomes more expensive to mine, less people will mine.
(While the supply should stay more or less the same, thanks to the network automatic adjustment.)

Ok.

Let's look at the period between November 2011 and December 2012.

I contend that the hashrate was going straight up while the price kind of bumped along sideways and slightly up.

I could make the argument that that hashrate rise is what led to the parabolic price spike beginning in February.

Exactly, most people couldn't give a fuck, and that's why I find the idea questionable of there being lots of money on the sidelines but just waiting for difficulty to increase.

You are right on the money about the scamcoins, and that includes Blightcoin as well. There can be no second proof of work chain in the long term, doesn't even matter if the algorithm is different. Eventually, it will be attacked by people with vested interest in Bitcoin. It all amounts to sucking money from unsuspecting people.

This may be true in the real world but it's not true in Bitcoin world.It would only be true if the mining companies were allowed to mine as much gold as they wanted, but that is not the case in Bitcoin world, you can only mine a set amount per day.

So what would happen is this:

The mine owner would go to Mine Co A, see they only have labourers with pick-axes and donkeys and so tell them "you guys can go mine on the edge of the mine where the rock is soft and the gold is easy to get to, that way you can still get your 100 nuggets per day

The mine owner would go to Mine Co B, see they have all the best stuff and say " because you guys have all the best stuff i'm sending you deep into the mine to work on the hardest rocks that are tough to get out, so you'll also end up getting 100 nuggets per day.

In Bitcoin world company B would NOT be much more valuable than company A, they would be worth the same amount because they both produce exactly the same amount of gold per day/month/year

I am not involved in mining at all so could be completely wrong BUT from the anecdote above it i would probably have to disagree with Frozenlock. This is because:
A hash rate that goes higher and higher means it's harder and more expensive to mine the nuggets. If companies were having to buy newer, tougher more expensive machinery to mine and the nugget stays at $1 you would hit the point where all companies would go bust because the rising cost of the evolving machinery would mean that no one could make a profit, so the price of the nugget would HAVE to keep increasing so that the companies mining were always able to turn a profit.

or to take Frozenlocks example:
"People go deep to mine gold because it's valuable; gold is not valuable because people have to go deep to mine it."

Actually, if it only cost you $1 to go deep and mine that gold you'd be happy selling it for $5, but if it cost you $10k to go mine that gold would you still sell it for $5? No of course not, the price would be over $10k because you'd still have to turn a profit. In a sense he is right that gold is not valuable because people have to go deep to get it, BUT it's value IS and WILL BE determined on how much it costs you to get deep enough to mine it. If you could go out with a snorkel and grab a pearl you'd be happy to sell it cheap, if you had to buy a super yacht and build one of those funky submarines to grab the pearl would you still sell it as cheap? of course not, the bottom line price of the pearl WOULD be determined by the cost of obtaining it.

If the hashrate goes up and up then it means it's becoming harder and more expensive to mine the bitcoins, which means the price will have to increase.

You're right. This is very much over the heads of most speculators.

I talked to a couple of guys at the conference looking to get involved by buying up alt coins. I warned them that speculative attacks could easily be carried out by bitcoin miners looking to destroy competitors. The thought clearly had never occurred to them.

Sure enough in the very next session crazyrabbit explained to everyone how freicoin had just gotten taken down by an attack. And now more recently we get another attack on feathercoin?

The mind of a miner is a unique thing.

We must not forget free electricity for the average college geek miner.

And then who doesn't like the idea of printing up money?

Especially when you don't have to dig.

Why not mine their own little Bitcoin fork? Same hassle, same fun?  
But yeah, I see your point.

Like I said, I've never seen anyone saying he is concerned by the "low" hashrate.
I also think this is way above the head of many speculators.

The cyclical alternation is probably the best explanation as there are no absolutes when talking about anything related to prices.

That actually allows me to highlight another reason why miners mine.

For enjoyment. They're geeks after all and this is what they do.

Hashrate influences the price by making speculators more confident that their money won't disappear from a 51%attack.

Here is a great past analysis of it that begun in early May 2011.


There was another dip beginning December 2012 following a period of sideways. Two consecutive difficulty decreases, one increase and another decrease that ended up the bottom.

Sure, some are more inclined to mine at a loss etc., but the upwards motion is first technology and second price driven.

Interesting. If they want bitcoins, why wouldn't they just buy, instead of mine?


Ok.
Does that give the hashrate any way to influence the price?

Since being in bitcoin since January of 2011, the only real dip in hashrate that I witnessed was for a brief few months from about August to November 2011. Otherwise it's been steadily if not parabolically increasing.

My explanation to fit my perceived notion and experience as a miner of this is that there is literally a rush to secure as many bitcoins in hand as fast as possible in anticipation of a price rise and before the asymptotic decrease in rewards kicks in. This is all irrespective of the price.

Also there is a community aspect to bitcoin mining that does not exist for gold.  It's not purely profit driven.

"Wow, Bitcoins look like an interesting hedge. Time to allocate a few % of my holdings and pour a few millions into it – ah, the difficulty is only 15 million and hashrate 150 TH/s. How overvalued. Will wait a couple months, then."

Seriously, back when we routinely had people buying multimillion USD worth of BTC, I don't think the difficulty was of any consideration. I don't believe it is a metric people base investment decisions on, other than mining hardware.

One case that can be made though is that it's a cyclical alternation between investment in BTC and investment in mining hardware as the one gets unprofitable and the other more attractive. But I'm not sure, most of the time, both are attractive at the same time and unattractive at the same time.

Indeed.
I've yet to see a single person making that argument.

"Eh, Bitcoin is interesting, but the hashrate is too low for now... network isn't secure enough."

So, what you are saying is that the Avalon batch 2 and the batch 3 of asicminers are not going to increase the hashrate?
Because such a jump in the hashrate sure would look like a peak following the price in my book.

Reddit was full of people investing in mining a month ago. Now it's rather... silent.
My guess is many bought mining equipment and they will receive it in the coming weeks/months.

Do it! I'm open to discussion. If you can zoom in and circle the interesting parts, I'll be happy to look.

Ok... and the consequences of the philosophical motivations are....?



While some argue some of my points, I've yet to see an opposing argument showing that hashrate influences the price.

Is the collective wisdom NOT buying Bitcoins purely because they deem the difficulty too low? If not, it has no effect on price.

However, I believe there is another effect, and it's that an increase in profit margin is bullish because miners can afford to speculate with a larger portion, ie hold them. Currently, the profit margins are of course rapidly decreasing due to sideways/downwards price action and still skyrocketing difficulty. My assumption is that the percentage of the daily mining subsidy (3600 BTC) that is released to the market is increasing because the costs that have to be covered are rising.

I don't expect hashrate to top out very soon, and that's thanks to the incompetence of the suppliers who are lagging extremely. There's already hardware for multiple hundreds of TH/s it seems. I do expect it to top out again sometime, as always, people will order far more ASICs than profitable for some of them in this arms race and some of them will have to drop out. Funny thing though that the prices for ASICs can plummet far further on the open market than GPUs because they have no other purpose than generating profits in Bitcoin's POW. Quite risky particularly when you have no clue when they will ship.