Bitcoin Forum

I posted these charts in another thread, but thought I might as well go ahead and create a new home for them. I have been collecting data on the order book depth on MtGox, in addition to actual trading activity, since around the 14th of December and I have created a few historical charts that might be of interest to some of the traders here. I am not trying to spread FUD, I am trying to provide data. Make of it what you will.

http://img23.imageshack.us/img23/1306/adjusted.png

This graph shows the total bitcoin supply in red, adjusted to fit on the scale of the mtgox supply figures in blue. This chart shows a significant divergence between the total available supply, and the total actual supply visible on mtgox's order books. As you can see, the gap has just today started to close. What this indicates to me is that a significant amount of the mined coins have been held over the past few weeks, and a correction is overdue... but on it's way.

http://img507.imageshack.us/img507/2356/demand.png http://img38.imageshack.us/img38/9449/supplyv.png

These charts show the historical total aggregate demand in dollars as well as the total mtgox supply.

http://img220.imageshack.us/img220/417/dxdemand.png http://img502.imageshack.us/img502/2500/dxsupply.png

These charts show the daily change in both supply (figures in btc) and demand (figures in $).

Trade volume activity (collected since the 21st):

21/12/2011 15:53 - Bid (buy) Volume: $92607, Ask (sell) Volume: $108854 => Net $16,247 sell
22/12/2011 23:58 - Bid (buy) Volume: $83754, Ask (sell) Volume:  $188171 => Net $104,417 sell
24/12/2011 11:52 - Bid (buy) Volume: $124414, Ask (sell) Volume: $159448 => Net $35,034 sell
25/12/2011 16:00 - Bid (buy) Volume: $116765, Ask (sell) Volume: $143122 => Net $26,357 sell
26/12/2011 13:30 - Bid (buy) Volume: $134398, Ask (sell) Volume: $188173 => Net $53,775 sell
27/12/2011 23:59 - Bid (buy) Volume: $166066, Ask (sell) Volume: $193020 => Net $26,954 sell
28/12/2011 05:45 - Bid (buy) Volume: $174779, Ask (sell) Volume: $198527 => Net $23,748 sell
29/12/2011 21:20 - Bid (buy) Volume: $203902, Ask (sell) Volume: $228877 => Net $24,975 sell
30/12/2011 23:59 - Bid (buy) Volume: $203871, Ask (sell) Volume: $334398 => Net $130,527 sell

From the data above, you can see that over the past 10 days there has been a net selling activity of $442,034, yet somehow the price has stayed at roughly the same level. There has not been one single day where the buy volume in dollars has exceeded the selling volume in dollars.

To me, this is a stark indication of profit taking. In addition, there is significant market manipulation going on keeping the price artificially afloat in order to take more and more money from buyers. Despite all the selling, it was all followed by low volume rebuys occurring right after the sales in order for the big players to 'cover their tracks' if you will.

This stinks of an impending fall back to lower price levels, because you can only mislead bulls for so long before they either run out of money or rationality kicks back in.

Take this data for what you will, but I think it speaks for itself. I have no idea what way the price is going to go right now, but considering the fact that the MCAD is showing 39 days of positive price divergence, and the RSI has been >70 for 12 days, I know which direction I am betting on.

Make sure you get yourself onto the right side of the market soon.

I've been reading a bit on technical indicators.  Is it not a bull signal when price increases with falling volume?  I do not remember the specific indicator; if anyone could help me out I'd appreciate it.

the Dow rose 110% btwn 3/09 and 5/11 on decreasing, low volume.  it was one of the most amazing rallies i've ever seen of course driven by QE 1&2.  We're about to get QE3 soon.

Maybe at the start of a rally, in a market in which the supply is not manipulated, but definitely not at the end of one - which is where we are at today.

Can you define your terms  of traded buys and sells a bit more precisely?

Here, I found it

http://en.wikipedia.org/wiki/Negative_volume_index

Dysart’s theory, expressed in his 1967 Barron's article, was that “if volume advances and prices move up or down in accordance [with volume], the move is assumed to be a good movement - if it is sustained when the volume subsides.” In other words, after prices have moved up on positive volume days, "if prices stay up when the volume subsides for a number of days, we can say that such a move is 'good'." If the market “holds its own on negative volume days after advancing on positive volume, the market is in a strong position.”

https://i.imgur.com/g2WXM.png

Is this right?

nothings ever right more than once...

I wrote a quick program to parse through every trade on MtGox over the past 24 hours, the data for which is obtained directly from the MtGox API. It multiplies the total amount of btc traded by the price paid for each trade. The figures I have posted are the totals of this parsing.

I know, and I wish there was too. There is a ton of both usd and btc sitting silently off the books on MtGox, and that is before we even broach the topic of bitcoinica's darkpool. But we do have specific and reliable data on the total bitcoin supply, unlike in any other real world market, and it cannot be hidden from view or otherwise obfuscated. This is what makes these indicators more relevant to bitcoin than, say.. gold, where the supply can be hidden quite effectively. With bitcoin, there is a pre determined rate of production that we are all aware of. When the volumes on the exchanges diverge from the linear increase in the total supply, the greater the divergence, the more suspicious I become.

As you can tell, I am very suspicious right now.

The depth numbers are too easily manipulated, that is why I said make of this what you will. But I think the trade volume figures are quite interesting, and far more indicative of market sentiment than anything you can get from depth. It is easy to post a buy or an ask when you know that it is never going to be executed. It's far harder to manipulate the actual trading volume figures.

2+2=4

Hyperbole is never correct ;).

...when it comes to markets.

Things can be right out you qualify them with probablities.

Can you do a chart of rolling volatility from your data? Use say a 20 day window and express it as an annualised percentage ?  

I don't take requests! :D

In seriousness, my data is pretty limited at the moment - I have only been collecting since the 14th, but I do have these, which represent the daily changes in both supply and demand on mtgox's orderbook. The demand figures are in $, and the supply figures are in btc.

http://img220.imageshack.us/img220/417/dxdemand.png http://img502.imageshack.us/img502/2500/dxsupply.png

Again, make of it what you will.

EDIT: I will add these to the OP as well.

I was thinking in terms of simple price volatility. 

I'm not really collecting much information on price movements, as my strategies are over the long term and I don't like to bet on short term price fluctuations. I am more interested in market depth and trading volumes.

Right and wrong are irrelevant. What matters is supply and demand.

Interesting set of numbers.  Given every buy is matched to a sell, what are these numbers? It's not total gox depth (BTC or USD). 

For example, there are buy orders for 27 million coins ($700k) and asks for 234k coins (some stupid number of $).  Last 24 hours 43000 coins for 180,000.

FUD

They represent the active trades that have actually taken place on gox. I.e. if I buy 1btc, someone who has an unfulfilled ask sitting on the order book sells me the 1btc, but it is the 1btc buy that is being counted as the initiating trade not the other way around. If you post an order for a price that is not currently available, it will sit there until it is fulfilled. And it is the fulfilling order that is counted.

If you say so. If the data scares you, or makes you doubtful and uncertain, don't blame the data.
When you try to suggest that objective and empirical data is FUD, the problem is on your end my friend...

That's to be expected after such a huge rally, it is also natural that it took time - because people did not know when the rally stopped.  But it is about to change - too many threads trying to talk the price down with a very small effect.

What is that supposed to imply?

I guess if you have time to wait you post an offer and if you care less about price and just want asap you go to the market. So recently the sellers have been more impatient?

I am curious to why there is suddenly a spike of these "price is going down" threads. My main explanation is that some people are not happy that they missed the $2-$3 buying zone which might be never coming back. They are desperately trying to get the price lower to jump in. Not necessarily the agenda of the person who started this thread, but there is another new active poster in this forum area that is a rather obvious case.

To me the fundamentals are massively strong now and Bitcoin is going to way higher prices, on a sustainable basis. There are two important aspects to this, one is that the stronger the upswing looks like, the more traders will take a long position. I managed to take a long position a while ago actually but as it is with that type of position, I'm certainly not selling now. Nor am I selling at $5 etc. In fact I will only sell if I see a clear bubble situation, the ideal would be if I never needed to sell at all. I could simply have them as savings and use them when Bitcoin becomes more widely accepted.

The second aspect is that some people, most notably Revalin, seems to base Bitcoin fundamentals on its usage as a medium of exchange. That is a flawed approach in my opinion because Bitcoin will always be used more as a store of value so it's actually possible for bitcoins to reach quite a high value based on mostly speculation. It will require a higher sustained market cap of course so that the price is more stable and people start to keep long positions in a more patient way. But I see this happening because Bitcoin is the ultimate store of value and I'm personally very tempted to increase my Bitcoin investments even further. It simply beats everything.

The best thing about it is that it's not just a store of value, it's a very convenient money transfer mechanism as well. If it were possible, I would use bitcoins for everything. But the growth of such an economy is slow, it'll take many years even in the best case to reach that point. Before we reach a market cap high enough it's necessary to constantly look for bubbles but we're not in a bubble yet, we're in the process of recovering from a massively oversold market.

I think it's obvious, especially with the data provided by mjcmurphy.  Lots of people have sold in the past few weeks and they want the price to go down so they can buy back in.  Some of them are taking to the forum to try to nudge the price in the direction they want it to go.  Simple as that.

"trying" is the operative word.

once again, Technomage is willing to take the time and effort to "explain" exactly what is happening.  i commend him for his patience and foresight.  i have already implemented his thinking.

It could be in part because, we have seen many instances, where the price rises, and is short lived at the higher level. We're all kind of used to this routine, or maybe expect it. When the big player(s) dump massive amounts of coins, some lose big, and we are all trying to avoid that.

As I write this, the wall at $4.30 was just breached!  ;D

oh no! ;)  (you know i love u Man)

LOL, Spring is here!

seriously guys; watch out for the Double Ramp...

I'm not trying to imply anything. That post was in response to PatrickHarnett's question.

@tehnomage: I'm not curious why there has been a recent increase in the number of bearish threads, isn't it pretty obvious? For the same reason that the bulls are constantly posting threads about the 'rocket taking off'. We have reached the peak of this rally according to some, and they are trying to get their arguments across.

What I have done is try to be as neutral as I could with this thread (as much as I can, it is impossible to eliminate bias) and let the data speak for itself. It's limited I'll grant you, but certainly should give even the most ardent and blinkered bull pause for thought.

After an increase of almost 100% over the past month, there is naturally going to be a price correction back to lower levels, and if this is true growth it will continue up again from there. This has absolutely nothing to do with bitcoin's suitability as a currency, it is as a result of market speculation. The price has to be tested in both directions if growth to continue.

I don't think any of the bears here believe that bitcoin is doomed. I certainly don't, and I know that I am only temporarily a bear. I am a long term bull, but also a realist. I think in fact that the bears actually believe more firmly in the future success of bitcoin than the bulls, because they want more btc, while the bulls only care about their fiat profits! Kind of ironic, eh?

I disagree. According to a fairly recent poll, most people in this forum are mainly trading for more BTC. But that is sort of too black and white, at the end of the day what I care about is my purchasing power and the value of my investment in general. I see it as only temporary that we need to think so much about the fiat value of our BTC, if Bitcoin continues to grow we won't have to, eventually.

The correct way to think about it is that the value of your BTC increases, in general. It increases in relation to everything. Not only in relation to dollars or euro. Bitcoin still has very limited usability as a medium of exchange so it's clear that we need to compare it to fiat, at least somewhat, but that's something I hope will continue to become a smaller issue in the years to come.

As far as who's bear and who's not, it depends. I'm of course a long term bull, always have been, but I did revert to bear in the short term in the time between September and November. Now I've been a bull on all levels for a while again because I see that the trends are changing. And my long term view is actually more bullish than it has ever been, my confidence that Bitcoin will actually amount to something, has increased.

What is this "double ramp" you speak of?

about 10d ago we had one of enormous proportions.  the strategy circulating around here at the time was sell or short into all spikes since they inevitably come back down.

at the time the price had been stuck @ 3.2 and the MCO had decreased to unsustainable levels.  i could see that a big move was imminent and indeed it spiked to 3.7.  as the sellers and shorts stepped back in and brought the price back down to 3.5, a second ramp occurred taking the price to 4.5. 

the sellers/shorts were essentially assed raped.  as i'm typing this we're seeing it again...

Thank you for clarifying! That's what I was thinking, but wasn't too sure. I've got caught in those a couple times, in fact, the one you're referring to. Luckily, I managed to get back on with a slight gain.

I know. That was my poll thread actually.

i forgot to mention that the Bitcoinica users were hit especially hard as Zhou's algorithm took the price to 4.95 at the time, LOL!

so many ppl got liquidated in that one and he even had to reverse some trades.  i don't think he should have done that b/c once you capitulate to clients like that, you're doomed to having to do it again.  he is creating a problem for himself.

i dare say an apology is coming from somewhere!

I'll wait a few days and eat my hat if I am wrong. I don't have a problem with being proved wrong. Anything that strengthens the bitcoin economy is good, even if I have made a balls of my trading decisions. There is nothing stopping me from buying back in, but I still think my data will be proved correct at least to some extent. This could well be the last push. The only thing I wish is that I had waited a little longer.

HAHAHAHA ;D

I don't get the joke...

I saw the same high possibility of a drop as you did, and I also sold out before today's rally.  It's not really being "wrong": no one can forecast one big player buying $250k worth of bitcoins. The bid side didn't budge, either, so it was all new money - very unexpected.

If that had been a 60k btc sell, the price would have hit $2, no question about it.  It's still a small and unpredictable market.

There is no Bitcoin economy. Bitcoin is currently nothing but a USD middleman USD => BTC => USD and a speculative investment.

Or have you seen people earning Bitcoin wages yet?

Before this most recent spike a single 60k BTC sell would not have taken the price to $2.  It wouldn't have even broken $3.  Perhaps subsequent selling would have broken $3, but even that's not certain.

The divergence is back to being huge again:

http://img809.imageshack.us/img809/5729/divergencechart.png

@old_engineer: I don't think the money was necessarily new, it could have just as easily come have come from off the order books on mtgox, or from bitcoinica. There is no way to know for sure if it is new money or not.

@Blitzboom: I don't know about you, but I know that I am making a decent income from my bitcoin business.

you forgot, that by definition a bitcoin mining person is a bitcoin bull. why sell if prices continue to grow?  :o

thats actually great news.  congratulations.

Thank you.  It may  or may not be a relevant metric, but interesting that you have captured the data.  Time series analysis can be fun, but it also might be random, or a sentiment of the general movement of the trading.

every commercial SR-seller..

And your Bitcoin wages are your main source of income? Do you not convert the majority of them to fiat money to sustain yourself?

If so, there may be a tiny Bitcoin economy.

I think it's more of a meta-currency.

Thought this BS was thoroughly refuted:
http://bitcoinmedia.com/bitcoin-replaces-western-union-thats-all/

Bitcoin can be many things but at the moment it's at it's not even in it's infancy. It's a newly hatched dragon. Wait until it flies and breathes fire.

http://img513.imageshack.us/img513/8537/adjusteddepth.png

Supplies on MtGox will be increasing from today onwards, I'll wager.

http://img59.imageshack.us/img59/3418/bidsasks.png

You can see that on the 31st, the daily bid (buying) volume briefly exceeded the ask (selling) volume, but it immediately went straight back to the way it has been for days with the asks greatly exceeding the bids. I honestly cannot understand why so many of you people are buying when it is clear as day that there is some major cashing out going on at overinflated prices.

Buyers are getting absolutely fleeced at the moment. If you would all just have a little patience, you will get these coins for MUCH cheaper very soon.

i know this must be torture: up 22% from 4.3.

c'mon over to the good side mj, you're a bull  ;)

I will, once the price is a little more realistic again! If I bought now, I'd just be giving my money directly to you, then be on the losing side once again when the price falls. I won't say it's not torture, but I made 95% profit already, and I'm happy with that. I'll wait, I have faith in the data...  ;D

mj: Yeah keep posting those charts.  You posted them on my New Year's Eve Rally thread and derp! It went up to $5! ;D

Yep. That was an epic fail. But I wouldn't presume to try and predict crazy moves like that in the short term.
The bulls are losing steam, though, I can feel it. And the data is confirming it.

i guarantee you won't be buying them from me.  i already made it clear i was holding for much higher prices.  seriously; i don't trade.

Buy and hold isnt a smart trading method. But whatever.

What difference does it make whether it's a smart trading move or not?  Seems to me he made it clear that he wasn't trading.

thats the prevailing wisdom in todays stock mkt.  but i don't think it pertains here with Bitcoin when there's so much potential.  that doesn't mean you're not smart enough to trade the swings but for me its just not worth the risk of being left behind.

Not really. Miners fundamentally don't care if the BTC exchange rate stays flat, drops, or goes up. What matters (for most, not all) is profitability. Profitability is proportional to Difficulty and the BTC exchange rate (adjusted by operating costs such as electricity and equipment depreciation, but let's keep it simple). As long as they are profitable enough, they mine.

And to offset their operating costs, they must sell BTC whether the market is rising, dropping, or stable.

Bitcoin is different from the stock market. The price can go anywhere, any time. If Jeff Bezos wants it at $1000 because he needs the volume for Amazon it'll be there before you know it. If that happens when you're empty, with what will you shoot?

Ahem...
We still have a ways to fall yet.

Have you considered that despite the low price of last couple of months most miners kept mining (presumably at a loss) ?
Now the price rose to levels where they can pay off electricity.
I'd guess this is a pretty strong force against a bullish crowd.

And your data is inadequate to predict anything spectacular about the recent uptrend.
Take a look at this: http://bitcoincharts.com/charts/mtgoxUSD#rg60zig30-minztgCzm1g10zm2g25zvzl (http://bitcoincharts.com/charts/mtgoxUSD#rg60zig30-minztgCzm1g10zm2g25zvzl)
If you look at the last two months in log scale you see a pretty straight line up with pretty well defined support and resistance.
This is a pretty strong movement!
Now take a look at this graph: http://bitcoincharts.com/charts/mtgoxUSD#tgCzm1g10zm2g25zvzl (http://bitcoincharts.com/charts/mtgoxUSD#tgCzm1g10zm2g25zvzl)
Notice that bitcoin, overall, behaves pretty predictably and that halfway november a trend-change had occured.
And if there is rationale for being bullish then this is it, i guess.
Looking at the flexibility of bitcoin price there is no reason to think the selloff will change this trend.
The bulls will win.

Also, the price is yet to fall below the support.
Once it's below 4.2 or so you MAY be on to something.
But for now, i think your imagination has the upper hand.

Sure, there is possibility for manipulation, but this has a limit and the price fluctuates (at the moment) within a channel.
No need for mass panic or paranoid accusations yet. :)

Yes, miners have continued to mine and one of the points I was trying to make is that the data would seem to show that many of these coins have been held off the markets, considering the large divergence between total supply and the supply levels on MtGox - to the tune of almost 250,000 btc. Now that the price has risen, I would expect at least some of these coins to show up soon.


Believe me... I have looked at every chart you can imagine and came up with a few of my own too. Yep, it has been a pretty strong month, but we all know what follows strong rallies and we also know that logarithmic advancements are unsustainable.

I am not trying to predict anything about the uptrend, other than trying to illustrate the fact that there is persistently more selling going on than buying and highlighting the stark divergence of supply on mtgox to the total number of bitcoin in existence. I don't have the data from the beginning of the rally, but this is behavior that occurs at the top of a peak, not the bottom.

Notice that falls have been sharply and abruptly corrected over the past few weeks, even sometimes in contradiction of the RSI and MCAD indicators which then turn out strangely kinked. I know that these indicators are of questionable value in a market as small as this, but despite that, many people still rely on them to make their trading decisions.


You have indeed said it, manipulation has a limit and there is only so long that market participants can be hoodwinked before it becomes too costly to continue. I think we are reaching that limit (if we have not already) and am seeing many signals of an overbought market. What is the point of waiting until a fall back to 4.2 to act? The whole point is to try and assess the status of the market in advance of large movements. I prematurely sold at $4.3, but had still made 95% profit on my trade so was happy to exit at that point.

As I have already said, buyers are currently being fleeced at $5 prices. I don't have any inside information to back up my claim of manipulation, but considering what has been going on over the past 6 months, I don't think any of us are in any doubt that it is occurring. I think the $2.20 support is going to be re-tested over the coming weeks because despite the slow and steady uptrend over the past month, I think has been largely unconvincing and it could easily represent a change in manipulative strategy rather than true growth. If it has been true growth, what exactly is it that has been driving it? Nothing has changed as far as I can see. I think we all need the assurance of a bottom before the price can rise much further.

Almost forgot todays chart updates. Supplies are indeed increasing:

http://img543.imageshack.us/img543/6084/adjustedsupply.png

http://img42.imageshack.us/img42/2562/bidask.png

http://img824.imageshack.us/img824/2356/demand.png http://img62.imageshack.us/img62/2825/supply.png

Triple post I know, my apologies. But I have an addendum:

Bitcoin is a fantastic, world-changing technology. But a few people are getting WAY ahead of themselves. The price of a bitcoin cannot be supported by wishes and dreams. In the end, the market will decide a price that is reflective of the underlying bitcoin economy. Bitcoin can be used as a viable trade medium at any price, granted, but at the same time it will not, and cannot, be held artificially afloat for long.

At an exchange rate of $5, $36,000 of new money must enter the marketplace every single day (including weekends) in order to support this price, let alone drive it further. That is $252,000 worth of brand spanking new fiat entering the system every week just to sustain the current price at a fundamental level. Does anyone think that we are truly seeing investments of this magnitude?

* shrug *  looks like bids & asks are both increasing?  correct me if i'm wrong; i'm no chart expert

You can't have my mining profits for $5.

it would be true if all bitcoins ever mined and being mined went straight to market.  out of +8M bitcoins in existence how many sees the market? a very small fraction at best in relativity small periods of time

I don't want them for $5. I want them for quite a bit less actually.

The fact that you are making profit from mining at all underlines another fact - that the price is currently overvalued.
I'm not you, but if I were, I would take my profits now and buy back later when the euphoria has worn off.


True, and that is exactly why the price is so easy to manipulate right now. But rationality always wins out in the end.

My bitcoins are tied up in other investments.  I'm earning about 1% a day on them in diverse portfolio of stocks, loans, and a trading bot...  As long as they don't drop that much daily I'm not selling.

c'mon now mj; thats what you advised yourself at 4.3 and now look where they are.  trying to play the small waves are just about impossible so why not get in now and ride the longer term wave up?

My surfboard is in the shop. It's getting a reality check. :D
Don't worry, I'll be on your side again soon... when the price is right.

There's a long way to go and we'll make it to $10 before April, and if you want to oppose that trend and wait for the crash, you, sir, will be waiting for a long time indeed.  Sure, there will be a major correction... but this rally is going to continue for a while.

You should take a look at historical bitcoin charts.  When the price moves in a trend, it does so for a LONG time.

Unless I'm mistaken, 7 weeks of of continuous upwards movement is the longest rally, if not the largest in terms of price, I have seen to date.

I just don't get why people think there should be zero profit for mining. I agree it shouldn't be a huge profit, but break-even mining removes the incentive to secure the network. Would you (or anyone else for that matter) work to only be able to pay for the gas used to get you there? What would be the point?

The incentive is to ensure that the transactions you send to others and perhaps more importantly, those you are receiving, are processed quickly, correctly, and efficiently. That is the only incentive required in my view. In the future, most of the mining will be done by those with the greatest vested interest in the system itself - i.e those with profitable businesses that require the bitcoin system to function efficiently as a means of payment.

They won't care about mining at break-even, or even at a loss, when they are making plenty of profit from their individual bitcoin enterprises. Do you think banks and huge corporations require their computer and telecommunication systems to have zero depreciation, or indeed appreciation? They count these expenses as operating costs, and bitcoin mining will be no different. It is a cost of doing business, and it will be minimized like every other expense.

Inefficient miners will probably be priced out to the point where even the most efficient miners will be operating at levels barely above break-even. They might even eventually require subsidy from the bitcoin economy to pay for upkeep of the infrastructure, and since most individuals are profit hungry, their work will likely end up being done by those businesses themselves for a fraction of the cost. That is the only way to ensure mining is done as efficiently as is possible.


No I wouldn't. But if traveling there and back was the only work I actually had to do, and if I had no other obligations, I may just go along for the ride. If I liked driving enough, I'd be more than willing for someone else to pay for my pastime. I might even net a few bucks if I could find a gas station selling cheap fuel. At least until I realized what a waste of resources the whole venture was, and started to feel a bit guilty about the environment.

This, for sure.  IMO most of the people that poo-poo mining profits don't really understand how much of an undertaking it really is, if you want to stay competitive.  Plus, it's a neat hobby for those so inclined to maintaining computer hardware for specialty purposes, and it's REALLY damn neat and fun and exciting because the miner supports a necessary function, which really literally has the potential to change the entire world's monetary base, and even the potential to change the way the world views money and economy.  But I'm sure you've heard all THAT before...  ::)

Fact of the matter is, I *LOVE* playing with comp hardware, and some people don't.  Getting it to all work together efficiently is part art, part science, and that is the type of WORK that certain people gravitate to.  It takes substantial WORK, above and beyond the raw resources (hardware, power) to efficiently mine btc and a profit is deserved for that work.

Computer and telecom systems are often outsourced, and I see outsourcing of bitcoin mining farms (hell maybe even have them in house) in the future.  Hopefully powered by wind, solar, or bio-diesel generators.

Is network administration overvalued?  How about network security?  By your logic, these professions should not be profitable and perhaps not compensated monetarily?

You have a point actually. Do we really need network administrators for a network that will administer itself? Do we need experts in network security, when the network has it's own self-adaptive defense mechanisms? Networks in the future will have brains and immune systems of their own. They will not need our inefficient help, other than for unskilled manual labour - which may itself not even be required in time. The singularity is near...

These are valid points.  However, There is plenty of work involved in maintaining and to a lesser extent operating mining rigs/farms as pointed out by Crypt-Current. But, to expect people to mine for zero profit out of the kindness of their hearts, so others with zero costs can send a tx at THIS early stage in the project just dumbfounds me. Don't get me wrong, I mined for 6 weeks at a loss because it's what I do, and I don't have a problem with the small loss. I make far more from trading anyway. The same mindset would be the example of the business that relies on their own mining efforts to send and receive tx. Most others right now aren't so generous though.

Difficulty is what balances the profits. When price rises, difficulty is sure to follow. So, profits are driven down. When profit drops below comfort level, miners will start to drop out.
If they continue to make a small profit, the difficulty will remain high enough to keep massive profits in check, while still being worth the time to mine.

I'm not trying to troll you. I have just read so many posts of "Miners shouldn't make any money".  It's kind of aggravating, and I am done now.
BTT  :)

What has rationality to do with economy? If everyone would act strictly "rational", the economy would spiral down because almost all of the economy is driven by men's sex drive. So what rationality do you think will win out at the end? The rationality of Diogenes?

I'm pro-technology, and I think this is an appropriate place to point out that life-extension technology (not limited to, but definitely including plastic surgery) is getting better and better, such that we are seeing hotter and hotter cougars.  Maybe someday soon the economy will be largely driven by womens' sex drives.

That's not what i'm seing.
The BC economy is much smaller than the action on the exchanges.
So the actual influence of the economy will be smaller and basicly bitcoin is played by speculators.
And miners, which produce bitcoin.
The economy just tags along. They had to deal with sub-1 prices, they had to deal with 30+ prices and then back to 2 and now 5 again.
That price is not driven by the sales of goos or services for bitcoin. It's way too unpredictable for that.
If you see a rally on the exchanges it is not because people spend bitcoin in shops. It is purely people speculating or dumping their mined coins. Those are the real factors in the price.
I have been unable to find back the effects of the 'economy' (goods/services) on bitcoin pricing.
But sentiment and speculation trends are easy to find.
So, in fact, bitcoin has been supported by wishes and dreams all along.
:)

Silver taking a beating again today.  C'mon over to the Bitcoin side!

i hear an apology coming...

a very heartfelt apology ;D

I don't see what there is to argue about. Miners mine, they are paid a reward
. No-one decides how much of a profit they make.

Then we will need John Connor

Glad that there's at least a couple of people who share my view.  To look for an "underlying economy" of merchants is looking at the thing upside-down.  Just as with dollars, the volume of speculative exchange far exceeds the volume of commercial trade (trillions each day in Forex, while real GDP is only trillions each year).  And that's with a "real currency".

What if bitcoin is, as that Wired article suggests, a "meta-currency".  The term implies that its primary use will be as a go-between for the real-world currencies.  Price is determined by speculation, which then forms the base for commerce.  Again, speculation supports commerce, not the other way around.  The volume of commerce is just a fraction of the bitcoin economy, which is the huge exchange volume (speculative or otherwise) staring everyone in the face.

Is there any reason or historical precedent that the commerce should come before the speculation?  That seems backwards.  Which came first: that bullion became valuable because it could be used to buy things, or that bullion could be used to be used to buy things because its inherent properties were conducive to storing value?

+1

Nothing else supports a price. Tell me: What would the price of anything be in a world of enlightened Buddhas with no wishes and dreams?

The other advantage of a high price per BTC is that it weeds out small time manipulators. If each BTC is worth upwards of $50, manipulating the market becomes a much more expensive proposition. Not impossible, by any means, but only within reach of those able to manage large sums of money.

Seems like manipulating the price down would be pretty easy for those people with many tens of thousands of bitcoins.

True, and if that was the case with very early adopters, it would make sense. Or, for that matter, for anyone who suddenly found themselves in possession of huge quantities of BTC (i.e. the allinvain or mybitcoin theft). But it would make very little sense for someone who has either mined or hoarded to dump extremely large amounts into the market, IF the price per BTC is as high as that.

My point is that higher prices actually dampen the ability to manipulate in either direction. If I own 100K BTC, and the price is at $50, I have little incentive to dump them all at once (unless I want to buy myself a mansion), when smaller sales will satisfy my needs and maintain the value on the BTC that remain.

It's not that there should be "zero profit." Rather, profit for miners will tend toward zero, always. This is not unique to bitcoin mining, but is a phenomenon of all markets - profit rates tend toward zero as competition chases efficiency. It's an asymptote, of course, but it's important to understand the tendency.

Further, since all miners don't have the same electric and component costs, mining will always be unprofitable for some people in some areas.

I understand what you're saying but I think you're failing to take into account the worry that somebody else might dump enough bitcoins to significantly reduce your purchase power.  So, you might think, you would want to do it before they do.

Agreed, that's why there are runs on stock exchanges and banks... but in reality there hasn't been a run on a bank in a long time (in Europe or North America at least, South America had them in 2001).

It will always be possible to manipulate any market, provided you have the right amounts of resources. But as the price of BTC climbs, the small time manipulators will be weeded out.

And again I ask what I asked back in July: what would've been the impact on the US and world economy if the NYSE had been hacked and every share sold at its rock-bottom price? Or if most of the big banks had been hacked? That was the equivalent of the MtGox hack in June.

Some say we will always have scandals. But that's a bit like saying we will always have airplane crashes... it's true, but it doesn't tell the whole story. I can say quite confidently that there will be an airplane crash that will take dozens of lives in the next year. But to say that because of that aviation is as unsafe now as it was in the 1930's would be more than a bit misguided.

I'm impressed by the security of MtGox since the hack, and overall I think the infrastructure has come a long way.  There's still a ways to go, however.  Though, if major hacks like what we saw in 2011 can be avoided from here on out, I think trust can be rebuilt.  I can see the case for fewer and fewer of these large dumps, even if I'm skeptical.  If trust in the system is high enough, and bitcoin can be used to buy more and more of the things people want, then there won't be a reason to liquidate as much and as often.

Bitcoin won't reach much higher until the multisig stuff is widely used.  Only then will it be safe enough for the average windows user.

Good point.  There are lots of uses outside where users don't need to hold bitcoins.  I still see issues however since the media will hype it again and normal people will be using it and will have coins stolen.

Average growth since earliest pricing data for Mt. Gox from Bitcoin Charts (http://bitcoincharts.com/) is about 8.6% per week (http://noblenomads.com/2011/12/30/accelerated-foundation/).

Reversion to the mean (http://www.investopedia.com/terms/m/meanreversion.asp) in relation to growth rates suggests a valuation of USD$28 per BTC. Even at a reduced 5% growth since the 2011 bubble puts the exchange rate at $10.

Nothing trades in a straight line; corrections will occur. With average inflow of ~$1.5mm per week and only ~$300k needed to maintain a stable price (the last time inflow was below $300k was in mid-April 2011 (http://bitcoincharts.com/charts/mtgoxUSD#igWeeklyztgSzm1g10zm2g25zvzcv), just before the bubble), a decline in price is extremely unlikely.

The reasons for Bitcoin adoption are not easily seen from within the system, but by looking outside at the declining incentives to hold other classes of assets. Currencies such as USD are overvalued and fundamentally unstable - for $300k/wk to flow into an alternative like Bitcoin hardly even registers.

It's good to acknowledge the data, but it must be applied in proper context: Bitcoin is not of a magnitude where capital flow is comparable to established economies; it is far more likely that a few drops from the global economy will send the exchange rates on a moonshot than current wealth be divested from the Bitcoin system.

I generally agree with your sentiment, but this statement makes no sense. What the heck is a "meta-currency"? IMO, the Wired guy who invented the term doesn't know himself. Generally, the article is an abomination, I'd be too ashamed to leave the house again after writing such nonsense. Genjix wrote a nice blog post on it, still too nice in my opinion though, but it saved me the hassle of typing rage-posts.

Anyway: by the given reasoning, the USD is one hell of a "meta-currency". Almost everyone uses it to quickly exchange into something else.

Like I said, if bitcoin becomes dominant then it will be the preferred go-between for real-world currencies and any other e-currencies.  "meta-currency" = currency of currencies.

As for USD, the "given reasoning" you quoted was my reasoning for why the speculative economy of bitcoin is a good thing that enables commerce, not an evil which prevents it.  Even though the dollar is obviously the dominant currency at present, I don't think I need to bother going through the list of reasons it makes a terrible meta-currency (and compare them to properties of bitcoin which make it a great one).

I completely agree with genjix's response (http://bitcoinmedia.com/bitcoin-replaces-western-union-thats-all/) to the wired article, though I do object to his saying that "meta-currency" makes no sense.  I guess he flamed it because it seemed to pooh-pooh bitcoin, even though the mere suggestion that bitcoin could replace Western Union IMO still recognizes its phenomenally disruptive potential.  I'd say that makes the tone of genjix's response a little too mean.  The article even suggests replacing wire transfers too (SWIFT like chodpaba mentioned above).  If genjix wouldn't have defensively overreacted, he might realize that "meta-currency" is a pretty good term for describing the revolutionary difference of bitcoin.  Its way better than the simple "currency" as in "yet another currency".

Matter of fact, even though he said the term is meaningless, I'm going to add genjix to the "bitcoin is a meta-currency and speculation is good for commerce" club.  What he said right afterwards shows that in fact he does think of bitcoin as a meta-currency.  Of course, if he or anyone else can come up with a better term then I'd love to hear it.

This post is #1 in the running for my brand-new "Best Post on Bitcointalk.org of All Time" award.

... prize yet to be deterMined