Price drives difficulty: https://bitcointalksearch.org/topic/price-vs-difficulty-3979
Topic: Why don`t prices follow difficulty change? - page 2. (Read 4979 times)
prices went up following ( or even passing ) difficulty
you answered your own question, even passing, that's why, difficulty tries to catch up to the price.
yes, too many people mining and not enough buying tends to do that to the market. soon enough people will realize and switch over and it will even out.
do you mean in some 'technical' chartist way?
otherwise i still don't see it. if demand were to dry up, the cost to mine a bitcoin today doesn't provide a fundamental floor to its value. what i paid to mine a bitcoin is a sunk cost.
otherwise i still don't see it. if demand were to dry up, the cost to mine a bitcoin today doesn't provide a fundamental floor to its value. what i paid to mine a bitcoin is a sunk cost.
no, not a sunk cost since at the point that it becomes cheaper to switch off the miners and start buying BTC on the market the already invested core will do that .... what do you think is boot-strapping this thing into existence?
fairies?
... there is something real underneath all this, it just takes some thought to see it, the fundamental floor that is.
do you mean in some 'technical' chartist way?
otherwise i still don't see it. if demand were to dry up, the cost to mine a bitcoin today doesn't provide a fundamental floor to its value. what i paid to mine a bitcoin is a sunk cost.
otherwise i still don't see it. if demand were to dry up, the cost to mine a bitcoin today doesn't provide a fundamental floor to its value. what i paid to mine a bitcoin is a sunk cost.
Difficulty does have a small effect on price. When difficulty is high relative to the price, people looking to invest in bitcoin are more likely to buy bitcoins than hardware.
Yes quite. Difficulty provides the bottom line to the price channel.
Difficulty does have a small effect on price. When difficulty is high relative to the price, people looking to invest in bitcoin are more likely to buy bitcoins than hardware.
The best answer is that difficulty increases are already priced in.
Price drags difficulty not the other way. If people value coins more highly then people will pay more to mine for them. But people paying more to mine for them doesn't make people willing to pay more.
In the last difficulty changes prices went up following ( or even passing ) difficulty, but this time prices are stable over 6.5 - 7, why is that happening?
Why don't you describe why you think it should have?
difficulty changes don't cut supply except in a very short-term way, and even then not in the steady state. the new supply for any two week period is roughly the same (16,800 btc) until the block-generation subsidy halves (every four years), modulo simple lagging effects related to the fact that difficulty changes are abrupt rather than continuous (by necessity).
given that, asking 'why don't prices follow difficulty' is much like asking 'why doesn't the price of gold rise as people start subdividing the existing gold mines?' the same amount of gold is there. it's just being spread out among more people.
causal effects in markets are hard to describe, but on most simple analyses, there's good reason to think the effect works the other way around: as price increases, we should expect difficulty to increase as the value of mining has increased. if the speculative frenzy in the btc/usd exchange rate popped today, we would expect to see fewer miners subsequently.
given that, asking 'why don't prices follow difficulty' is much like asking 'why doesn't the price of gold rise as people start subdividing the existing gold mines?' the same amount of gold is there. it's just being spread out among more people.
causal effects in markets are hard to describe, but on most simple analyses, there's good reason to think the effect works the other way around: as price increases, we should expect difficulty to increase as the value of mining has increased. if the speculative frenzy in the btc/usd exchange rate popped today, we would expect to see fewer miners subsequently.
Because there is no guarantee difficulty is related to bitcoin price. After difficulty it did cut new supply by 30%, but that new supply is slowly building again.
In the last difficulty changes prices went up following ( or even passing ) difficulty, but this time prices are stable over 6.5 - 7, why is that happening?
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