Bitcoin Forum

Bitcoin production is supposed to be about 7200 coins per day, which at $13.75/BTC is currently $99,000. So, right now, it takes about $100,000 a day in new money to keep the price of Bitcoins stable.

We just saw this on the 4th of July. No one was putting much new money into the markets, since it's a US bank holiday, and the price dropped from $15 to $13. The "weekend slump" has been mentioned previously. But it's not because people aren't trading - that's symmetrical. It's because they're not depositing new cash.

How long will the supply of suckers able to collectively put in $100,000 a day hold out?

You never know.  If next week PokerStars announces bitcoin poker, we'll very possibly have a revolving door of money somewhat permanently.

Thats not a lot.  Even a small cap company has bigger sales.

That's miners only.

Speculator profit withdraws into fiat should take more than that, and then there are exchange fees. All three are a value outflow that has to be considered.

i dont think it should be looked at from a point of needed 100,000$ new capital each day. more from the volume perspective.

rather we need min 7200 volume each day to stay stable ? (assuming no old coins sold and all new mined coins sold)

even these days with the low volumes being traded we are easily clearing that goal...



enough so to cover plenty of old coins being sold each day, but they will run out more and more and eventually the base value of a coin will be worth more each time it is traded at a rate higher than it was bought for.

please critique.

That is exactly right. I doubt all Bitcoins produced daily are sold immediately as you suggest, but the trend is definitely INFLATIONARY right now and the effect is as you describe.

Given that a constant influx of cash is required to keep Bitcoin going, it seems that the flow is drying up. Money enters the Bitcoin system through very flaky entities.  Mt. Gox has far too many problems to be considered a safe depository institution, and everyone involved now recognizes this. Tradehill seems better organized, but they haven't been in business long. It was clear over the holiday weekend that new money wasn't entering the system; the order book on Mt. Gox shrank visibly during the selloff. There was some hope that people would add more money on Monday morning, but so far, that hasn't happened much.

Nobody is using Bitcoins for transactions in any significant volume. If Bitcoin had acquired transaction volume before it acquired speculators, it might have succeeded. With the heavy speculation,  Bitcoin is too volatile to be used for retail transactions.  Today we're seeing 10% changes in Bitcoin price over 10 minutes. Without transaction volume, Bitcoin is a pyramid scheme, and needs an ongoing supply of new suckers. That supply seems to be drying up.

An unknown, but substantial portion of miners are hoarding bitcoins.  It is a hassle for the small miner to establish an exchange and dwolla account in order to liquidate their mined coins.

I respect your analysis but guess the figure might be closer to $50000 per day than to $100000.

My own contribution to this analysis is that the new cash required to support bitcoin prices drops directly with the price of bitcoins.  So, suppose that as the bitcoin bubble deflates, prices return to April 2011 levels, i.e. around $1 per bitcoin.  Then to keep the price of bitcoins stable, the market would not require $50000 per day, but rather only $7200 per day.

Once the bottom sets in, it will not take much buying power to turn it around.  That's why I think that there will be one or more premature rallies off the bottom, that will make the bottom hard to figure out.

$100k a day is nothing in the terms of even a small economy - that being said, the entire discussion theme on these forums should be rephrased.

BTC are not an investment - they don't generate profits for a buyer without someone else putting money into them. This is true of all currencies, hence the tired "pyramid scheme" argument.

The demand in the market is ultimately dictated by what people view it's trade value as a currency is. Build applications for merchants/users that make this thing easier and simpler then a credit/debit card and you will see that value increase for the long term, unable to be controlled by speculators.

If you really want to contribute here, convince merchants to accept and support this currency in it's infancy. Develop payment networks that sit on top of BTC that allow for safety/trust in transactions with unknown parties. Support businesses that accept them by using them, if a business you purchase things from doesn't take BTC - send them an email asking them why they do not and if they have plans in the future to do so.

Use Bitcoins as a weapon to kill the paypal/cc mafia's and their exorbitant fees coupled with horrible policies. They leech money from the entire transaction economy increasing the costs for all of those involved.

Stop caring about the current PRICE of BTC/USD and only view what you want BTC to look like in the future, then build for that.

Good example of negative sentiment.

The only real use for bitcoins is masking black market transactions because it is the only instance where anonymity is worth sacrificing security. Since these items are pegged to dollars, the price of bitcoins does not effect the economy (other than instability). In addition, only a small fraction of the ~7 million bitcoins are necessary for this purpose at the current price.

7 Million bitcoins, 700 items on silk road. You do the math.

It doesn't work that way. Before Bitcoin acquired speculators, its value was precisely, exactly, $0.00. There was no way it could have acquired any transaction volume.

The speculators provide Bitcoin with enough value that people will want to sell stuff for it. Then the transactors can move in.

I'm sure there are plenty of Bitcoin businesses under development, but things take time.

I'm not an economist but I think you got it wrong. Whats relevant is the supply and demand of the coins. If 10% of coins are in active trading and others are hoarded then you need money for only the 10% of the 'total value' (total created BTC * price in $) to have a stable price. That is if bitcoin trading is active with say 1,000,000 BTC (supply-side) and 15,000,000$ (demand-side) the price would be 15$/BTC. The rest of approximately 5M bitcoins of course have this same value but if you try to cash them – the price plummets as supply increases. This is the logic of the overall price-production of bitcoin.

Mining changes the amount of total amount of bitcoins, part of which will become new supply to the trade and thus requiring influx of dollars to stabilize the price. If they all were directly cashed out, then your calculation probably would more accurate, although I don't think its even in this case that simple. Anyway, its not that bad, methinks.

I ask myself the question, if Bitcoins were a private project fueled by investment capital beholden to one voice - how would it be run?

Since we are all owners (in one way or another) in this project and some of us have short-term goals, some longer. Obviously the goals and how you reach them will be dramatically different between those two groups, so this is certainly a grand experiment indeed.

In some ways, I hope that my level of sentiment appeals to all parties. One for the speculators who are hoping for an easy/predictable market bottom - the second for miners looking for profits as a reason to continually increase the hash rate, and last the people who are really stuck with indecision right now - merchants. Right now, the first group is substituting in part for the third. Most of those hoping that the real third will eventually get on board (or that enough others at least feel the same way for the short view).

The irony is that the first two depend on the last. Bitcoin has the potential to be a disruptive technology - but to qualify for this - it needs to disrupt the current digital transaction systems (paypal, visa, mc, etc). That is the true competition and market niche that BTC must capture if the first two groups mentioned have any hope of survival in the long term. Otherwise as a new market, it simply doesn't qualify.

Oh my god. If this were to happen... my head would explode.

Yeah we should do this.  But there's no point interacting with this 'Nagle' guy.  His aim is only to talk bitcoin down.  He wants it to fail.  It's pure FUD. 

That's long since run out. Only the rational folks are left.

One thing to be sure of is that Nagle will be the last sucker to buy bitcoins .....

... and your math is absolute crapola, it doesn't 100k a day. You are meant to be a financial markets guy and you haven't 1st clue how money markets function ... I guess that's why Bear-Stearns, Lehman, Morgan-Stanley, Wells-Fargo, Washington Mutual, etc, etc are no longer solvent?

It's been noted for a while that the price of Bitcoins sags each weekend.  That's an indication that new money is required daily. You can still trade Bitcoins on a weekend, and people do. You can still mine Bitcoins, and people do. But you can't wire transfer in money from a bank. 

if it were always true that the price goes down on the weekend due to inability to wire fiat money to an exchange, the smart traders would spend the weekdays wiring their money in preparation to buy only on the weekends when prices are low.  This should level out the weekend dips in the long term

in other words if it was always obscenely profitable to do something simple, everyone would be doing it and nothing else, and then it would no longer be profitable

Further, if this were always true, the miners would stop cashing out on the weekends and save that for weekdays.

I actually think this is true and problematic. Nobody gets bit coins because they need to buy something with bitcoins. Am I wrong? You can already buy things at ebay and amazon with dollars/euros. Bitcoins need to be an available payment option for existing services that people already use. If this doesn't happen (and most likely won't), bitcoins will only exist for speculators thus making it a piramid scheme.

Sorry about my pessimistic vision, but I just don't see anybody really interested in this by any reasons other than ROI.

I'm not bullish about bitcoins right now, but why should we assume that all 7200 bitcoins go to market each day?

Funnily enough, this appears to be exactly what has happened... the weekend dips disappeared not long after lots of people started talking about how they were getting their USD into the site for the weekend to take advantage of them.

That's patently untrue. Bitcoin allows for micropayments in order to reduce spam and brute force password hacking. That's a use value greater than zero.   

Why do you assume miners immediately cash in all their mined coins?

I run a medium-size bitcoin mining farm. Haven't sold any coins for weeks.

i got my little dinky rig but i am also holding onto my coins as well

same

Mine and hold.  :D

Obviously they don't, but early adopters sell enough to make the effect roughly the same.

Well, that still doesn't allow to deduct "it takes about $100,000 a day in new money to keep the price of Bitcoins stable."

It's worth noting that the price of Bitcoins went up until it reached roughly the cost of "mining". Then the rise stopped. The price has basically been around $14-15/BTC for weeks now, with occasional excursions usually associated with Mt. Gox problems.

The difficulty stops rising when mining becomes uneconomic, because miners drop out and new miners don't start up. We currently seem to be in a situation where many existing miners with sunk costs continue to operate, but buying hardware no longer pays. See the difficulty discussion (http://forum.bitcoin.org/?topic=7427.0).

The cost of mining acts as a price ceiling, not a floor.

(Yes, in theory, heavy demand from Bitcoins for transactional purposes could push prices beyond the cost of mining. But that's not happening. Most of the enthusiasm for Bitcoins comes from "miners".)

Beyond help I'm afraid.

... mining cost has been well below the "price" of bitcoins for months now. Do some research before spouting off your FUD.

I think that's backwards.  The mining cost is now above the price of Bitcoins.  Or so seems to be the grumbling in the mining community from those considering buying hardware.

are you high?

Central bank based economies get closer to complete crash every year. Bailouts get more expensive. National debts accelerate. Taxes increase. The whole system is going toward a global economy crash. Cryptocurrencies, being a new kind of money, are not automatically subject to all the same laws that are bringing down those systems, and have other advantages, so as the existing economies crash, cryptocurrencies are the only way out. Even if Bitcoin crashes to pennies per bitcoin, its still a good investment (if you buy at that time) for that reason. Its going to grow because its not subject to many of the flaws of the existing system.

The Bitcoin price is driven in part by speculation, but MtGox and the others move a really little amount of BTC (the total number of order placed on MtGox is of about 50.000BTC). If you examine the transactions in the blocks you can see a quite big exchange of BTC. I've found that in 5 hours there are something like 60.000BTC used, that's make about 100.000.000 of BTC/yr moved (and this excluding the big transactions: there are some of 30-40.000BTC in the past 2 days). To have an idea of the evolution of transactions back in december blocks carry an average of  300-400BTC each now we are easily over 2-3.000 BTC
Numbers like those ones tells me that bitcoin are used not only hoarded or used as speculation, so there is an economy around BTC. And when this economy will reach a bigger volume (at least 50-100.000BTC/hour) we probably have the price driven by the request of the market.

Just my satoshi  ;)

Ugh!  Why won't this statistic die a painful death?  The overwhelming majority of the bitcoin volume that you see is people sending money to themselves as the "change" part in a transaction.  I've put a cogent explanation here: http://forum.bitcoin.org/index.php?topic=27472.msg346658#msg346658.  My best guess for the actual amount of BTCs moving a day is something like 20,000-50,000 BTCs a day, and if you're sufficiently motivated, you can calculate a pretty accurate estimate yourself (see the post I've linked to).

Here's an example.  Take a look at this block:  http://blockexplorer.com/block/00000000000007200e80dfb3a741b845a5c0e38a1ca5eef43a7059842578e86a.  That shows up as 0.747 million BTCs trading hands in 10 minutes (as far as I can remember, the average daily "volume" measured this way is somewhere around 2-3 M, so this is admittedly an example block chosen to vividly highlight the general problem).  If you bother to take a look at the blocks contents, you'll see that 0.744 million BTCs of *that* is simply one very rich early adopter sending a trickle (679.58 BTCs to be exact) to addresses that may or may not belong to other people (it could be his own Mt. Gox. account, for all we know), and sending large amounts of Bitcoins to himself over and over again.  In other words, in this one block, literally 99.9% of the "volume" is fluff, i.e., someone sending Bitcoins to themselves.  Think this person's just schizophrenic?  Look at just about any other transaction on any other block, most of them transfer something like 99% of the input money back to the sender (it gets worse: focusing on the total volume grossly overweighs transactions by owners of large amounts of BTCs, as in this example, and they *definitely* send large amounts of money back to themselves as change).

Since you were so eager to conclude that the "volume" as you measured was evidence that the BTC "economy" was vibrant, would it be unreasonable to suggest to you that the *actual* volume is evidence of hoarding and speculation?  It's not a coincidence that the *actual* volume is in the same ballpark as the Mt. Gox volume.  I'll let you follow that train of thought to its logical conclusion...

Thanks for the explanation, I've got your point and no, I'm not sufficient motivated to do that  ;D
Overall I've got the last 4 blocks, stripped away of the "self transactions" and obtained a 80-90.000BTC/Day instead of 240-250.000 of my previuos stat (stat that was already weighted).
I stay on my idea that the BTC economy really begin to works when we reach the 50-100.000BTC/hours of transactions: with this rate it can be in about a year.

Cryptocurrencies would crash right along with fiat currencies.  The Internet's infrastructure is not funded by bitcoins.  It's funded by the same fiat currencies that some people deride as being essentially worthless.  Until you can buy Cisco routers with bitcoins, pay your ISP bill in bitcoins, and pay the power bill in bitcoins, the cryptocurrency is very much subject to the same flaws in the system as fiat currency.

The only 'currencies' that would remain are those that have value as assets.  Metal, (iron, copper, gold, silver), food, medicine, alcohol, shelter, weapons.

When "crashing" means "you cannot pay in USD anymore" you might be right. But in case of legal tender, a "crash" is more likely hyperinflation / rebooting the currency with a 1/1000 exchange rate (Romania, Turkey all did that in the last decade, Poland in 1995) and you can get around that pretty nicely with Bitcoins.

That's quite true, but remember that even metals and commodities  have big variances in their values over years: iron ore, for talking of something I know well, in 10 years prices grown steadly from 13 to 170$/ton (due to big requests from asian market), but steel pipes (made from ore and recycled steel) prices grow "only" of 200% in same time range (reaching a top of 400% then dropping down). When most of the steel products will be made from recycling steel the ore price will drops again.
All the commodities are subject to the market law of demand/offer and their value can be cleared by the discovery of new commodities or new technologies: just before the WW II where I live you have to exchange 5/10Kg of rice to obtain 1Kg of salt now 1Kg of salt worths some €cents (that make 1Kg of rice worth about 10/20Kg of salt admitted that someone wants to do a similar exchange). Even the gold, used as main commodities in a lot of places, has his price raise from 461.09$/oz in 1981 to 1526$/oz of today, but it reaching a low 260-290 in 2000-2001; if you had invested in gold in 1981 and try to use it in 2000 you find your value near halved.