Bitcoin Forum

Hello there !

Why the price didnt go up after difficulty increase  ?

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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).

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.

I think the key point that everyone is missing is that this difficulty increase didn't actually affect the amount of bitcoins coming into the market.  Somewhere today we hit 12 terahash and thus the supply of bitcoin hasn't decreased.   In order for the price to go up the supply of bitcoin will need to go down by quite a bit.     Assuming the people that hoard will still hoard, and only a limited number of people are selling, the decrease in bit coins can have a pretty big affect on bit coin prices.

He cannot stop mining and sell (decrease the price) until after he has started mining and bought (increase the price).

The supply of new bitcoins doesn't change (much), that's the major point of the difficulty retargeting.  The daily new supply of bitcoins is fairly constant.  Price didn't go up because price doesn't follow difficulty.  Corrolation isn't causation, children.  You have to look at which metric leads the other.  Price changes consistantly lead difficulty changes, because a spike in the exchange price attracts new miniers.  Why is this concept difficult to understand?

miniers - noun - like a regular miner, only smaller :)

What's strange to me, is with this most recent difficulty increase, maybe my pool is lucky, but I'm consistently getting about 30% more BTC per day!

I would say that if you get a statistically significant batch of new miners, say 10% in a short time period, that would drive the price up, but again, separate from difficulty.

Moreso than difficulty or miners is perception... It's not even been a week since the price went from like $14 to $40 and back down to $10 in 24 hours.  Looking at the market depth, I see a lot of people looking to sell, not a lot looking to buy, but differently from usual, the sellers are just holding on to their BTC rather than lowering their selling price.  Seems a lot of people may be examining last weeks carnage and "waiting it out" to see what happens.

I include myself in that group - BTC is extra income for me, rather than my sole source of income, so I don't have that same "need" to sell.

I saw this and at first was like, "Wha..?" and then it hit me, and I bust out laughing.

Even a price increase might not attract new miners if for example suitable graphics cards are sold out. Another break in the trend could be once people start running into energy limits, or the price goes up to such an extent that FPGA mining becomes viable. Same for ASIC mining at some point.

Just a clarification, the all time high on Mt. Gox exchange was just under $32, so about 20 % below your mention.

Also, for the record -- the forum user bitcoinminer has no association with @BitcoinMiner (http://twitter.com/bitcoinminer) twitter account or http://www.BitcoinMiner.com (http://www.BitcoinMiner.com)

If you do the hard math to determine the actual value of btc based on capital investments, human resources, overhead etc. , youll see that BTC already has a premium built in for the increased difficulty.  The invisible hand knows everything!

In My estimation BTC is already overvalued by around 38%

And how do you know what the capital investments, human resource and overhead are?  You don't, and you can't.  No one can.

If economics were this easy we would all be rich..

Of course he can! He even used a percentage that doesn't end in 5 or 0!! What more do you need??

I think he just missed zero key at the end there ... ;)

OK?? lol yes, that totally changes this... wild swings from $14 to $32 to $10 to $20 in a 24 hour period had nothing to do with perception of traders...

I dont claim to have a twitter account OR a website in my sig, or in any of my posts, but thanks for clearing up the confusion you helped create...

the sad part is when difficulty will increase next time. If the price stay at this point, one 5870 will just cover electricity costs... It will be like 0,2BTC daily with 20$ = 4$ a day. I think that many small miners will give up.

shit won't hit the fan until blocks only yield 25btc.

but, having 4$ daily is worth it ? You probbably spend like 1$ on electricity. 3$ daily makes a 5870 about 3 months to earn for herself ; /

It is if you already bought the card.

but If bitcoin fails in 2-3months, its better to sell the card. After bitcoin failure, there will be like 10000000000 gpus on ebay

Don't worry, there'll be a Bitcoin replacement where those GPU's can be used.

And otherwise you could connect them together and create your own virtual reality in which you are rich. Hey, isn't that exactly...

I hope that the NSA creates a mining pool that pays similar to BTC if it fails.  Be a shame to let all that hashing power go to waste...

America... fuck yeah! comin' to save the muthafuckin' day yeah!