Topic: Some fundamental analysis of bitcoin exchange rate (Read 1538 times)

There are many reasons people are interested in bitcoin, many has nothing to do with the exchange price. Economy, political, technology, many reasons... Suppose that you are really interested in bitcoin and believe its long term potential, you never look at the exchang price to evaluate it, you only look at the most cost efficient way to acquire bitcoin, be it mining or buying, does not matter

Price drives difficulty and what miners are willing to spend on electricity.

Difficulty and what miners are willing to spend on electricity never drives price.

I think most of the hardcore supporter for bitcoin are miners with certain knowledge of computer and economy, so their first choice is mine the coin with most widely available technology, e.g. GPU

When GPU mining is not profitable due to rising difficulty (the generated coin could not pay back the electricity cost), they will start to shutdown the mining rig. But they are still interested in bitcoin, then they will buy coins from exchange, so higher difficulty will result in a higher exchange rate

Currently 1G hash gives 0.06 bitcoin per day, using $3 electricity, that is about 50 USD for 1 bitcoin

But when ASIC mining rigs arrived, this balance changed. If many miners upgraded to ASIC, they will have a very high return from the beginning, they won't buy coin any more, the number of miners who were forced to buy bitcoin will decrease, this will cause the bitcoin exchange price to lose some support

It's clear to see why Avalon did not want to expand their production capacity, since that will not only increase the network difficulty and reduce ASIC miner's profit, but also hurt bitcoin's exchange value

Suppose in the not too far future, ASIC mining devices become widely available, then it will again be the same as last year when people using GPU mining rigs. The amount of total electircity cost will drive the exchange rate

The bitcoin exchange rate is supported by the hardcore miners, they are the real driven power behind bitcoin economy, not like any outsiders who only look at exchange rate, they are interested in bitcoin itself regardless of used mining technology and exchange rate

Recent fast price appreciation largely due to arrival of ASIC miners which brought a 40x increase in mining efficiency and potential difficulty increase. I think in the future the price development will be more gradually