Why the price didnt go up ? - page 2.

ploum

sr. member

Activity: 428

Merit: 254

Quote from: Anth0n on June 15, 2011, 02:09:27 PM

Quote from: ensign_lee on June 15, 2011, 01:06:52 PM

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Suppose difficulty increased by 100x. According to your logic, prices would still not increase because difficulty does not affect price.

Let's say Bob is a Bitcoin newcomer. He decides to mine to get them, but then difficulty increases by 100x. So instead, he decides to buy them because mining would be far less profitable. Other people have the same thinking as Bob, and decide to buy instead of mine. This drives up the price. Difficulty does therefore affect price.

Bob is a miner. He now has 100.000 bitcoins and invested a lot of money in a mining rig. Difficulty increase and he realizes that mining is not profitable anymore for him. He decides to retire and to take his money back. He sell 50.000 bitcoins that very same day.

Price fall.

Funny, I just demonstrated that the difficulty increase might drive the price down as well.

Nath

newbie

Activity: 15

Merit: 0

One thing people tend to forget: The difficulty rise is already priced into the market rates.

In other words: All people who trade BC know that the difficulty will rise and thus they already considered it in their decision to buy or sell BC.

Thats very common in stock markets: There are often situations where a company releases very good raised earnings - and still the stock of the company goes down? Why? Because the people who buy/sell stocks always have expectations in the future - and those expectations determine the price, not the current situation of a company or a commodity.

With BC it's the same: The current price is based on expectations of BCs future, not the current "state" (like difficulty). And since everybody already expected the current difficulty jump (and also the next etc), those informations are already considered in the current price. It only has an impact if for example the next difficulty jump is much higher or lower than expected (or other unexpected things happen).

ensign_lee

hero member

Activity: 886

Merit: 500

Quote from: Anth0n on June 15, 2011, 02:09:27 PM

Quote from: ensign_lee on June 15, 2011, 01:06:52 PM

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Suppose difficulty increased by 100x. According to your logic, prices would still not increase because difficulty does not affect price.

Let's say Bob is a Bitcoin newcomer. He decides to mine to get them, but then difficulty increases by 100x. So instead, he decides to buy them because mining would be far less profitable. Other people have the same thinking as Bob, and decide to buy instead of mine. This drives up the price. Difficulty does therefore affect price.

But see, in your example, the driving force for btc price increases is Bob, the bitcoin newcomer. NOT the difficulty increase. He wants bitcoins, driving the demand up, thus driving the price up. Not difficulty.

rezin777

full member

Activity: 154

Merit: 100

Quote from: tomcollins on June 15, 2011, 02:59:48 PM

Quote from: rezin777 on June 15, 2011, 02:44:17 PM

Quote from: tomcollins on June 15, 2011, 02:35:55 PM

If I want to get 50 coins, I have two options, buying them (or trading for them), or mining them. If I buy them, it will push the price up. If I mine them, it will not.

Hmm... I understand what you are saying, but technically these two should have the same effect over time? In both cases you are reducing the supply of coins on the market by 50. You are just going about it differently.

No, because if you mine or don't mine, it doesn't affect how many coins are generated by other people (until the next difficulty increase).

No, but it guarantees that the 50 coins you wanted won't be sold on the market (assuming you wanted to keep the 50 coins in either situation).

You buy coins (and don't sell them), you remove them from the market. You mine coins (and don't sell them), you remove them from the market.

tomcollins

full member

Activity: 182

Merit: 101

Quote from: rezin777 on June 15, 2011, 02:44:17 PM

Quote from: tomcollins on June 15, 2011, 02:35:55 PM

If I want to get 50 coins, I have two options, buying them (or trading for them), or mining them. If I buy them, it will push the price up. If I mine them, it will not.

Hmm... I understand what you are saying, but technically these two should have the same effect over time? In both cases you are reducing the supply of coins on the market by 50. You are just going about it differently.

No, because if you mine or don't mine, it doesn't affect how many coins are generated by other people (until the next difficulty increase).

But the other factor at play is everyone knew difficulty was increasing. Anyone thinking of building a mining rig would (or at least should) have accounted for this increase. Everyone knew roughly how big it was going to be and it should already be priced in.

It's a complex situation. Miners selling immediately may sell more or fewer depending on their strategy. Some will sell to recover costs, some will sell all, etc... The ones selling to recover costs will need to sell a higher % of coins they mine. The ones selling all won't change anything. There are a lot of forces pushing things in different directions. The clearest relationship of course is if the ratio is very favorable to mining, more people will mine, and difficulty increases. Beyond that, it's mostly speculation. You also see just a lot of people getting interested, which drives both difficulty and price upward for similar reasons (there are more people buying rigs and more people buying coins). So that's why you sometimes see things go up together.

rezin777

full member

Activity: 154

Merit: 100

Quote from: tomcollins on June 15, 2011, 02:35:55 PM

If I want to get 50 coins, I have two options, buying them (or trading for them), or mining them. If I buy them, it will push the price up. If I mine them, it will not.

Hmm... I understand what you are saying, but technically these two should have the same effect over time? In both cases you are reducing the supply of coins on the market by 50. You are just going about it differently.

shady financier

member

Activity: 84

Merit: 10

etcetera

Quote from: Notrem on June 15, 2011, 12:58:12 PM

Hello there !

Why the price didnt go up after difficulty increase ?

Price-follows-difficulty is sticky and slow, difficulty-follows-price is quick and... not sticky.

tomcollins

full member

Activity: 182

Merit: 101

Quote from: Findeton on June 15, 2011, 02:21:36 PM

Quote from: Anth0n on June 15, 2011, 02:09:27 PM

Quote from: ensign_lee on June 15, 2011, 01:06:52 PM

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Suppose difficulty increased by 100x. According to your logic, prices would still not increase because difficulty does not affect price.

Let's say Bob is a Bitcoin newcomer. He decides to mine to get them, but then difficulty increases by 100x. So instead, he decides to buy them because mining would be far less profitable. Other people have the same thinking as Bob, and decide to buy instead of mine. This drives up the price. Difficulty does therefore affect price.

People want money, and just because of that, price affects difficulty. That's much more powerfull than your assertion on how difficulty affect price.

Price to difficulty ratio absolutely affects where new "investors" choose to invest - mining or buying coins. If I want to get 50 coins, I have two options, buying them (or trading for them), or mining them. If I buy them, it will push the price up. If I mine them, it will not. So when people become interested in Bitcoin and want to make an investment, the ratio absolutely could decide how the price adjusts.

However, this factor may not be as large as people make it out to be. The price/difficulty ratio has been extremely favorable for miners up to this point, yet the price still has surged. So difficulty is still catching up. It's hard to put TON of systems online quickly to mine. Hardware takes time to assemble, ship. Rigs take time to set up. So if there are ever big price spikes, difficulty can keep rising for a long time after that, even without any more price surges.

Right now, the balance is still favored more toward miners than it has been in the past. So you'd expect to see more people still going for mining than buying. The higher the price gets, the harder it gets to bump the price up even higher, but raising the difficulty costs the the same. So the price jump will be much less than the difficulty jumps for a bit.

Stephen Gornick

legendary

Activity: 2506

Merit: 1010

Quote from: Dude65535 on June 15, 2011, 01:25:18 PM

When price is high compared to difficulty more is spent on mining hardware and less on directly on bitcoins. Therefore difficulty increase does have a small and delayed effect on the price of bitcoin.

Here's a relevant article:
- http://virtuallyshocking.com/2011/05/25/the-relationship-between-bitcoin-price-and-difficulty

Findeton

full member

Activity: 126

Merit: 100

Quote from: Anth0n on June 15, 2011, 02:09:27 PM

Quote from: ensign_lee on June 15, 2011, 01:06:52 PM

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Suppose difficulty increased by 100x. According to your logic, prices would still not increase because difficulty does not affect price.

Let's say Bob is a Bitcoin newcomer. He decides to mine to get them, but then difficulty increases by 100x. So instead, he decides to buy them because mining would be far less profitable. Other people have the same thinking as Bob, and decide to buy instead of mine. This drives up the price. Difficulty does therefore affect price.

People want money, and just because of that, price affects difficulty. That's much more powerfull than your assertion on how difficulty affect price.

Anth0n

full member

Activity: 144

Merit: 101

Quote from: ensign_lee on June 15, 2011, 01:06:52 PM

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Suppose difficulty increased by 100x. According to your logic, prices would still not increase because difficulty does not affect price.

Let's say Bob is a Bitcoin newcomer. He decides to mine to get them, but then difficulty increases by 100x. So instead, he decides to buy them because mining would be far less profitable. Other people have the same thinking as Bob, and decide to buy instead of mine. This drives up the price. Difficulty does therefore affect price.

DamienBlack

jr. member

Activity: 56

Merit: 1

For god's sake man. I told you in eight different ways in your last thread that the prices weren't going to go up because of difficulty. I had no idea you meant _immediately_, that's just crazy. You do realize that the prices are set my people buying and selling. There is no governing body setting prices. All the buyers and sellers knew that the difficulty was going up. If they felt like it had any effect on the price, they had _already_ taken into account and adjusted their prices accordingly.

Furthermore, there are 6,500,000 coins in circulation. Before the increase, we were mining about 10,000 coins a day. After the increase we are mining about 7,000 coins a day. That is only a 3,000 coin change. That's only 0.04% change when compared to the entire number of bitcoins. So the price should really only change about that much. This is all very hand-wavy, but I told you, repeatedly, in your last thread, that the any price change is already baked in.

Dude65535

full member

Activity: 126

Merit: 101

When price is high compared to difficulty more is spent on mining hardware and less on directly on bitcoins. Therefore difficulty increase does have a small and delayed effect on the price of bitcoin.

ensign_lee

hero member

Activity: 886

Merit: 500

Because that's not the way bitcoin works.

Difficulty may increase after a price jump. Why? Because now it's even more profitable to mine, so more people bring more machines online, and so difficulty jumps.

But think about the opposite situation: Why would price jump after a difficulty jump? The price of btc does not follow how hard it is to generate them. The people buying bitcoins don't *care* how much hashing was required to create them. Why would they?

Bottom line, PRICE DOES NOT INCREASE BECAUSE DIFFICULTY INCREASES.

Notrem

member

Activity: 111

Merit: 10

Hello there !

Why the price didnt go up after difficulty increase ?

Topic: Why the price didnt go up ? - page 2. (Read 5333 times)