Topic: Why are some vouching for <1 USD BTC? (Read 2267 times)

Because of its deflationary nature bitcoin is more akin to a commodity than a currency...  You don't just print bitcoin when you need more bitcoin.  You need to invest in mining equipment and electricity.


Right, but the speculator is over time not likely to be stupid and purchase something for $5 that only cost $2 to produce.  These are common markups for businesses that have transportation fees, employees to pay, locations to maintain and pay taxes on... they don't make sense for something like mining.  The bottom line is: Why would anyone pay for this?

When bitcoin was at $30 there was a link from one of the profitability calculators to a place that'd sell you a ready to mine rig, calculated to pay for itself in about 20 days.  The skills required were roughly "plug it in, sit back, and watch your ass and bank account grow."  During those times there was no discussion possible on whether it's more effective to buy or mine.  As a result 75% of the current network capacity got added over about 3 weeks while prices imploded.

Also, seriously, this is a geek's currency.  I'd go out on a limb and say approximately 100% of the current bitcoin audience capable of understanding, installing and using the bitcoin client are also capable of installing a video card and any number of mining packages.  The amount of effort here is still less than dollars -> bank -> dwolla -> gox -> coins.

Anyhoo, even now I'm looking at a cost to mine of $3.50 and a market price of $6.  Not worth wear and tear on my hardware, but for a professional mining operation it's definitely worth mining and taking a dump on speculators as soon as the coins appear.

grod, setting a mining rig requires tech skills, and still the dificulty will go up if hashrate goes up, so the risk is high. I wonder how many already got sink in useless hardware thinking such way...

There are two ways to obtain BTC.  One way is to invest in mining hardware, the other is to direct buy.

If market prices are $32/BTC and current low difficulty makes the cost of BTC 75 cents, which way do you think prices (and difficulty) went?   If market prices are $7/BTC and cost to mine is $3.50, which way do you think prices are likely to go?

You want to compare a market of goods with a currency market?! What you said looks like you're talking about oranges or potatos, there yes, quantity affects price. For currencies, which is what bitcoin is, such rules don't apply. An 1 usd doesn't cost more or less to produce than 100 usd.

Tacotime - a falling difficulty does not compel a lower price, nor does a rising difficulty compel a higher price. Price is set by the supply of coins for sale and quantity of buyers, that's all.

If the supply of coins for sale is not affected by the difficulty, and the quantity of buyers is not affected by the difficulty, then the difficulty doesn't matter.

It's all intertwined.  It doesn't matter which way it goes.  Even with an 80% price-drop, difficulty barely budged.  Can you imagine a worse scenario?  I think we're safe.

What that chart fails to take into account is the cost per unit of output.  Things changed rapidly at the beginning of the year with the advent of GPU mining.  I guess it's not even so much about difficulty as it is about miner efficiency and the amount of power and hardware it takes to make a single bitcoin.

The economic equilibrium could only ever be at a place where it made some financial sense to everyone involved...  You can't have people making 60% annual profits.  It pretty seldom ever happens anywhere for any kind of goods or services, and never happens continuously for long periods of time.  What we saw was a massive hyping beginning in April/May (when I first heard about it) that resulted in absurd, foolish investments by people who saw the lure of a new deflationary means of currency and felt it was akin to an actual commodity like gold.  This snowballed as the price drove the hash rate up akin to what you see with gold when government currencies are suspected not to maintain their value.

I actually didn't even realize the difficulty could decrease until recently, but I think it could be a very bad thing that it does.

Are you sure?

The price was inflated due to worries about the global economy and press about the currency, that is, we are not at economic equilibrium (which is commonplace in a free market; hype can drive prices through the roof).  If you go back to day one of bitcoin, it is pretty clear that both price and difficulty have increased exponentially, and that these increases are related to one another.

Bitcoin difficulty is currently less than 10% below its all-time peak, yet currently trading at 80% below its price peak.  The price obviously didn't "have to stay high."

This is another good point.  A perfect deflationary block chain currency would ideally also have these features:
- Static or increasing difficulty (difficult never lowers)
- Rapidly dynamic block size changes with difficulty, so that even if the difficulty were high and little was being mined, transactions could go through expediently
- Difficulty starts at at least 1 million, probably more ideally at 2 or 4 million (the initial costs of the currency would be very high to produce and thus probably also sell for larger amounts)
- Supply limitations designed around total coin being mined somewhere at least 100 years away

This seems hard for everyone to wrap their heads around.  Okay.  Every month let's say 200 new pounds of gold is mined.  In September, the average cost of mining gold was $10,000 a pound.  However, in October, a new mine is discovered that prompts the old mine to close because it is much easier to mine from.  Now, it costs $2,000 per pound, and 200 new pounds of gold are also mined.  This cheap new gold is announced on the news in the beginning of October.  If it just because five times easier to acquire gold by the company who is mining it and the investor knows this, why should the investor pay the same amount for gold as they had been when mining gold was harder?  Worse yet, what if a competitor finds a similar mine?  Competition would naturally bottom the price out, even if output was the same.  Diminished manufacturing costs cause the same economic behaviour as enhanced production amounts for the same cost to the company as before because they change the cost per unit of output.

This I think is actually an economic flaw of bitcoin; if difficulty never decreased (as happens with actual valuable commodities such as gold and oil) the price would have to stay high because the cost as a function of difficulty would only go up or plateau as time went on.  In real life, the price of a barrel of oil does lower with demand, however, the ease at which oil is obtained still remains at relatively the same difficulty because the supplies on Earth are exhaustible.

The intrinsic value of bitcoin I believe is strongly tied to the difficulty in obtaining it, and if it becomes less difficult, naturally the price would have to go down.  It's similar almost to LCD TVs; even if the demand for LCD televisions is staying at roughly the same levels, competitively the price has been driven down over the past decade because the process by which they are manufactured has become cheaper.  The equivalent scenario in bitcoin is that the cost of manufacturing bitcoin has become cheaper, so people, obtaining more for the same hash rate if they are mining, will be more willing to sell the bitcoin for less in a competitive market.  I think it might be possible for this to lead to the collapse of the bitcoin market.

This is pretty text book economics stuff, but I could have it wrong.  I was right so far about the equilibrium being around $4-6 USD for the current difficulty level and I fear I could be right about this, too (I am a miner and making money, but admittedly the returns for the past 6 months were nothing short of insane for miners).

"But difficulty do not influence price. Price influence difficulty."  This statement is flawed because both variables are functions of each other; that is, difficulty can be modulated by changing prices or price can be pushed in either direction by changing difficulty so long as the difficulty can go back down.  If the cost of production were to stay the same or only go higher, it's much more likely that the prices people are willing to sell their bitcoin for will be higher.  Buyers, knowing the costs of production, will also be more likely to spend more for them since they would not be able to so easily acquire them for themselves by mining.

for me it's easier to make money at lower prices since the same $ changes are a larger percent- but then since i'm mining also higher prices are good. I dreaded a lower price until it dropped and my trades started being quite a bit more profitable so either way it doesn't really matter any more what the price is as long as people are still trading and the money is changing hands- that's just my personal experience so far though.

and actually despite the price i haven't seen this much volume in mtgox since before the mtgox attack a couple months ago

 

Why? This makes no sense

Difficulty can vary if the price vary, if bitcoins is worth 1$ then a lot of miners will stop mining cause they will not be able to pay the electricity, if bitcoin jump at 50$ then a lot of miners will join and mine more

But difficulty do not influence price. Price influence difficulty.

Sorry for the typo, anyway, here's an early adapter for you:

Fixed for you. I wonder what an early ADAPTER is.

The question is you'll never be getting more mining less, if such happens to the best you get 2016 blocks which were easier to mine to those who kept their rigs on, nothing else.

Actually the only concern of your belief, is that if many "miners" bite it the network will become unstable. For 1 week or so transactions would take hours or days to be confirmed (and less coins will be generated, so under the same belief it means "bitcoin would have more intrinsic value") and later will be quite swift for a few days, to become harder has hell again 2016 blocks later...

Right, but if you get more by mining less, bitcoin will still be worth less intrinsically to investors because the costs associated with producing bitcoin will cost less.  This is in the model in which cost going into bitcoin is related to price of bitcoin, which is the only one that makes fundamental sense to me.

In this model, price of bitcoin is a function of the difficulty of bitcoin.  I believe this is reasonable based upon the logarithmic charts people have posted here.

It’s mostly people who want to buy in big time at lower values because they missed it or didn’t act on it the last time. Also people who have capitulated and sold all their Bitcoins at a loss.

I think there is a good chance that 4.18 has been at least a short term bottom. When that was apparent, I bought back in. I’ve seen lots of calls for 1-3, but I believe it’s the same delusion people bought at 30$ with, just bearish this time.

Personally, I see no reason to sell the Bitcoins I have acquired in February with 1$ when Bitcoin was something largely unknown to the media and public, there was no infrastructure besides maybe MtGox and slush’s pool etc. and a very small userbase. Fundamentally, Bitcoin is a pretty good bet at 4-6$. Good risk/reward again.

So, I’ll be back in hoarding mode, until either there’s a better Bitcoin competitor or the next bull market starts, as I consider it too risky to sell at levels where a single mid size player can make a difference of a few $ to the upside.

Looking at the spike from 4.6 to 7.4, this seems to have been a correct assessment so far.