Bitcoin Forum

Look at this link as proof: http://bitcoin.sipa.be/

Difficulty is plummeting. This is as I see it the strongest indicator of the price of bitcoin, the cost of creating bitcoins.

If the average Joe leaves then what is left is all the investors with heavy investments in 6990 GPUs etc. , they WILL want to have their money back asap, and they have invested massive amounts of money in May and June off this year. And they WILL sell at the market at nearly any price or a bit above electricity cost.

If the difficulty continues to go down (could be even just a modest drop), I have a new price target of 3-4 dollars. My last price target took 9 days (I said it will reach 5-6 dollars within 1-2 months when it was at 12 dollars), lets see how many days it takes for this one.

the price still didn't reach 5-6 dollars unless you have your own little exchange that you monitor. only 6-7, but that's not quite the same especially if you use orders when trading.

Investors won't sell at 5 when there is a chance to sell at 10. Market volatility is very high so they will wait correction.

The "proof" you provided is no proof at all.

Sipa calculates the hashing power of the network by aproximation. It computes the difficulty and the blocks found during a certain period. If the miners happen to be very unlucky for some period, it can seem that the hashing power is going down. And the same is true in the opposite direction, if the miners happen to be very lucky for a while, it can seem that the hashing power is going up.

Big short term variations are usually due to the luck of the miners. We have seen movements in the "hashing rate" like this before, both up and down.

You need to wait for a more long term average to confirm whether this was due to luck or not.

Difficulty doesn't set the price of anything. Don't know where you came with those "price targets" from, it's a supply and demand market, not a "pay for the miners luck" and bitcoins will not be generated faster by a small decrease in difficulty, as that also means a decrease in allocated computer power.

The price actually reached under 6 dollars (mt.gox), look up your figures.

Have you seen how the "hashing power" is already back up near 15000? Its not the total hashing power changing, its the luck of the miners influencing the stimations.

Basically this.

Difficulty is going to be a lagging follower of price in the long run, not the other way around.

The only way the opposite would occur is if a medium/large company decided to build a large mining array and then started running it before it announced that it would be doing something big with BTC that would raise the price significantly.

It's pretty much definite that difficulty will going down if nothing changes, actually. Estimates over multiple non-overlapping periods of time have consistently indicated that the hash rate has dropped, and it looks like we should be in for at least a 3% drop in difficulty.

Yes, I agree, but he was refering to the big "drop" that the 8 hour stimate had this morning.

I already dropped off of bitcoin mining awhile ago. Needs to be above $13 for me to get back in. (about 2.7ghash/s sitting idle) Got a months worth of bitcoin mining from mining ixcoins for 1 day anyway.

So i'll wait and see, but for now I'm not mining.

Actually, difficulty DOES have an effect on price.  Think about it this way.  You are new to bitcoins and you want to be long some, with your choices being mine or to buy.  If you do the math on power costs and at current difficulty your cost to mine is $7/btc with a bitcoin appearing once every 3 days while cost to buy is $5.80/btc, where do you think BTC prices will go short term?

Conversely, if the BTC is selling for $32 but it costs you about $2.50 to mine it at currently difficulty with a coin appearing every day where do you think BTC prices will go for the next few months?

There are other secondary effects.  If I look at difficulty and it looks like I'll have an easier time coughing up coins in the coming 2 weeks than today then it makes little sense to hoard.  If it looks like difficulty is going to drop a *LOT* then yeah, fire sale time.

That said my barometer of difficulty is deepbit.  Deepbit was going up about 100 Ghash/day, then that slowed down to 50 Ghash/day, and is now holding about even at around 5400 gigahash.  I'll panic if I see that drop to 4000 (which could happen if we trade at below $7/btc for more than a few weeks).  Until then it still looks like smooth sailing.

If you live in the American Midwest and are finding it unprofitable to mine, you can move your rig into my place and I will charge you only 40% of your current electric bill.

I get free electricity.

I disagree completely that difficulty causes price changes.

It's the other way around.

If the price goes up, more people mine, and then the difficulty goes up.

If the price goes down, less people mine, and the difficulty does down.

Price affects difficulty.  Difficulty does not affect price.

Yes, i found a lag of 15 days on average beetween price and diff., if price goes up then miners need 15 days to buy new hardware, setup the rig and start mining with the final effect of rising the difficulty.

Blocks per hour now down to 4.88

Next difficulty 1,841,634

Difficulty down -> More bitcoins for the miners that are left mining (and are profitable) -> more bitcoins to sell to the direct buyers -> more pressure on the exchanges

Same bitcoins per day to miners
Same bitcoins to sell to buyers
Same pressure on the exchanges

that's kinda what the difficulty does.

You don't get it? Why is it that so many here don't get easy math or easy economics. It should not be that hard. If difficulty goes down then I can mine more bitcoins with my "1,4 GHash/s rig" / day, when i do so, I will be able to sell MORE bitcoins / day, and because of that I don't need it to be at 5-6 dollars, I'm happy to get 3-4 dollars and I STILL make a good profit at the last line, that is in dollars / day. Get it now? If not please stop commenting.

If the 10 dollar price should be sustainable, we should start to see an increase in the difficulty soon. It is like the market of Bitcoins prices in a difficulty increase, at the same time miners are leaving (not in a hurry but you can see that it is going down) and are showing the market that they have for different reasons stopped mining. My bet is on that it will continue going down for a while. And once again the direct buyer is feeding the beast, that is the miners, without having done their due diligence.

YOU might get more BTC when the difficulty goes down, but the TOTAL amount of BTC paid to miners is THE SAME.  That's the WHOLE POINT of difficulty.

I think it's you that "don't get easy math or easy economics."

Another thing, don't think that because miners are leaving that is a sign that the prices are to low, that is only a sign that miners that shouldn't be mining in the first place mined bitcoins, the ones with high electricity bills. The Bitcoin economy as whole is big enough that you should see what you see in the real world, that is major advantages, so who are we that have them and will mine at pretty much any cost and are happy to see miners leave the market? The group of us miners that mine for free or with low electricity cost, and I know that we are a pretty big group. Some people actually do their due diligence.

And what happens if I get more Bitcoins, and everyone else that are STILL mining also does so? Do you think that our incentives to sell at a lower price would be higher? Do you think that everyone else that has bitcoins would see that and understand economics, see the opportunity to sell high (before the miners) and buy back cheaper?

/if/ everyone was getting more bitcoins than they should, the difficulty would adjust... and the faster people get bitcoins, the faster the difficulty adjusts to set it to 1 block every 6 minutes.
over time, the average will stay around 1 block every 6 minutes, though short term there will be fluctuations. This round you might earn more than average, then if thats true, next round you will earn less than average. That is how difficulty works.

Right now Bitcoin economy is in high inflation environment, later in maybe in 2013 (bitcoins mined is halfed) the price of creating a bitcoin isn't that important, because that in correlation to total amounts of Bitcoins is far smaller. But today this is not the case, still the amount of bitcoins in comparison to what is created are relatively big enough that it is very important to understand the price of one bitcoin created.

Get to understand the price of creating one bitcoin and do your due dilligence. So you don't get hustled at the exchanges by the traders that put up fake buy orders and also by the miners that make money on your dollars when YOU as a direct buyer are taking the majority of the risk by putting in money in this economy.

The miners have always two options. Stop mining (no cost). Sell the rig. The direct buyer has pretty much no options if someone wants to sell 100 000 bitcoins within a short time frame. Then you have lost 50 %.

That is not my point, I understand that.

My point in simple English is this. Miners that have high electricity cost will leave, that will take down the difficulty, that will make miners as me with zero or low electricity cost able to sell more bitcoins at A LOWER PRICE because we have a MAJOR ADVANTAGE.

Still don't get it? If not maybe you will get it when we hit new lows. As long as difficulty don't get a fair amount higher from the last all time high, the price of 10 dollars are very high.

I'm  trader and a miner.  I'm going to get the best price for my BTC no matter where I got them from, mining or trading.

I see what you are saying.  If miners get more BTC this week because the difficulty was lower, they will be more likely to sell them cheaper to cover electricity and hardware costs.

This is the old "difficulty drives price" vs "price drives difficulty" argument. We've been around and around this argument this whole thread.  It comes down to what you believe.

I believe price drives difficulty.

This is like "liberal vs conservative" - in the long run, there is no right answer.

On a related note, at least no one is arguing it's "un-ethical" to mine BTC: https://bitcointalk.org/index.php?topic=36881.0

That is true what you are saying price should in most cases drive difficulty. But I like to analyse things, for me right now that tells me that miners are more desperate. Because they have invested heavily in mining rigs last months, they wanted to "hustle" the direct buyer and thought they could make easy money, but we should be smarter then that. I'm a direct buyer (I believe in Bitcoin long term), but not at levels I know I am getting hustled.

i'll put this out there though. /I/ believe in bitcions, so i'm going to mine them whether i'm paying to mine them, or being paid to mine them. The reason is because I believe the long term bitcoin price will rise, maybe not this year, perhaps next, perhaps when its 12BTC per block... the halving will certainly drive price I think.

Hows this ENTIRE POST working for ya? :P

I think it's, on average, going up for the next 2 weeks due to the pre/post conference hype.  After that, I think a lot of it depends on the success on the conference (like, what will Forbes/CNN/Wall Street Journal/etc. make of new things like Bitcoin ATM and other developments?). 

... or ...
The previous difficulty was 1690895.80305
The current difficulty is 1888786.7053531

What price range happened at the previous difficulty?

Will it drop back to the previous difficulty at the end of this 2016 blocks?
No. It will be higher. Higher difficulty than the previous 1690895.80305 ... ... ...

Any association between price and difficulty would be extremely complex ... not a simple-minded "difficulty went down price will go down"

If all miners think like you, Bitcoin is doomed. Seriously, it's very obvious that you are not into Bitcoins for its success. Ultra low price = people loose interest = helping paypal in destroying bitcoin.

These people who say they its alright to sell low because they have free electricity, are you really sure its free? For example, young miners who still live with their parents think that they are mining for free. Even though the parents are the one paying the electricity, that will have an effect on the spendings of the entire family. Since Dad has to pay higher electric bills, some little luxuries and savings will be affected. In short, stealing money from the parents. And those who mine at work, thievery and corruption plain and simple and might cause the company to size down (if a lot of employees are mining at the office) and probably lay off some of the workers in the future (if unlucky, your butt is on the line).

I find all these market predictions hilarious since if price drops (which we know can happen since its still a volatile market) then these speculator threads are seen as prophecies however then the price recovers within 5days and those prophecies arnt being called out at all?

Ive noticed the absolute opposite to what you propose here, lower difficulty ended in higher trading value since more people get involved in the market and not only those who allready have coins from months ago.

Every single difficulty increase we have had since going over 1million difficulty resulted in a new low when hitting the next difficulty.

Drop the difficulty by 50% and you will more likely see the price stay relatively the same ~$10 or move up rapidly as before.

This is just another one of those and have no substance except pure gullable speculation.

Difficulty is lower but I don't agree with OP that it is plummeting or anything along these lines.

Difficulty dropped from 1.89 down to 1.80 or 5%. I will agree with the fact that difficulty will most likely drop some more, based on the fact that network is still losing its mining power daily. I see outflow of 50 to 100Gh per day. Network top was 14.1Th when price cracked down to sub $9 miners started leaving and are still doing so. I don't think difficulty will drop more than 3 to 5% unless something major would happen to the price in either direction. By major I mean 50%+ move.

I don't agree with OP on his new price target. At least not anytime soon, 4 to 12 weeks. Bitcoin being that volatile its hard to predict basically anything, but my personal opinion right now is, that price simply can not plummet like OP is suggesting. We could see price drop to $9.50 but that's about it for immediate future.

Last time price dropped to sub $6  it was a mix of very unfortunate things coming together at exactly the right time. It was 1 block sell of 26k at the market that dropped the price from $7.xx down to $5.75. This was the biggest 1 block market sell when price itself was already struggling. Whoever was unloading those big blocks could certainly come back and sell more, but at the moment price is very well supported on the bid side and it would take a lot of persistent selling to shake the markets like that again. Also every time we get this kind of shocks to the system, you have to realize that bitcoins are spreading from very few people to the much bigger audience, which is always a good thing. Eventually all the early adopters and maybe Satoshi himself will unload most of their holdings and bitcoins will be held by a greater number of people.

I'm currently waiting to see which way the market will decide to go. I still see the pressure at the moment is to the down side, which means $9.50 area is the key on the downside. If we get a rally and price starts to run, I'm interested in price above $14.00 to $15.00 area. All this are simple key areas from bitcoins trading history.

Instant difficulty currently at a multiple of 1.07 or 1.928 million.  Looks like the next increase might actually be an increase.

Holy crap.  1.30x instant difficulty now for 2.35 million! 

DB was over +10% lucky over the past 24-hours.
BTC Guild is holding +24% lucky over the past 24-hours.

That's why the 'Instant Difficulty' indicator shows 2.35 million...

Cheers,
Kermee

P.S. I'm still not worried about a Diff. Increase.
P.P.S. http://dot-bit.org/tools/nextDifficulty.php -- I've found it to be too 'aggressive' in its estimating in regards to Bitcoins. http://blockexplorer.com/q/estimate is a lot more accurate.

Thanks Kermee.  Good points.

First indicator that someone has no idea what they are talking about: they think difficulty drives price.

HAHA. And you think you know what you are talking about?

Anyone have a graph that compares difficulty with price over time (on a logarithmic scale)?

Wake me up when it hits 3-4 dollars.

Has the difficulty dropped yet?  It lags the block creation rate by weeks, but it ought to have dropped a bit by now.

fastandfurious, I've read your posts, and it's obvious you don't know what you are talking about.  For you to stick out in my mind, you must have said some pretty stupid things.  There's only 4 or 5 people on this forum that automatically trigger a "don't listen to him" reaction in me, and you are one of them. 

Price drives difficulty.  Not the other way around.  That's the way it is.

I'm going to respectfully disagree with that, to an extent.  There was a time when difficulty increased when Bitcoins had absotively no USD price at all (pre-MtGox). Price alone doesn't drive difficulty, otherwise we would have seen a significant drop in difficulty by now from the time when the BTC was $32.  Yet all we've seen are marginal drops in difficulty that could have been affected by almost anything.  People become disillusioned and pull out, and to a degree it's balanced out by people who are just finding out about Bitcoin and by people who are adding to their hashing power.  I think it would be more accurate to say that what drives difficulty is awareness and speculation.

Sorry, this is wrong.  Actually, thinking of this sort doesn't even relate enough to reality to be merely wrong.

The exchange rate does not drive difficulty.  However, the difficulty also does not drive price.

Price, difficulty and a bunch of other factors form a complicated system of non-linear differential equations.  In short, they all drive each other in a chaotic way.  And I'm using chaotic in the technical sense here, meaning deterministic but unpredictable, like the weather.

A quick glance at a difficulty chart and an exchange price chart should make it perfectly obvious that there is no simple relationship between the two, so I can't imagine why people keep insisting that one causes the other.

References that you should probably read before replying:

Chaos theory (http://en.wikipedia.org/wiki/Chaos_theory)
Newton's Method (http://en.wikipedia.org/wiki/Newton%27s_method) for finding roots of equations.  A ridiculously simple system that is often totally unpredictable.
Lotka Volterra (http://en.wikipedia.org/wiki/Lotka%E2%80%93Volterra_equation) a very simple model with only two equations.  Pay attention when you get to the part about the atto-fox.