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Cost of mining 1 Bitcoin hits market price in Nov... What will happen?

https://i.imgur.com/IfcEAv7.png

Source:  https://twitter.com/bitpump/status/508179636816478208 (https://twitter.com/bitpump/status/508179636816478208)

There will be no further investments in bitcoin mining equipment.  :)

They invested to much already. Is time for them to look at other opportunities. There are plenty.

trying to convice home miners that can't get that to work to cloud mining comes to mind as their plan

Your graph has absolutely nothing to do with bitcoin.


When the cost of mining rises, the less profitable miners stop mining. Less miners means lower difficulty, and that lowers the cost of mining. The result is an equilibrium in which the cost of mining stays around the value of the mined bitcoins.

Old gen mining equipment will be put to rest and many people who came late to the game will lose their investment.

The cost of mining one bitcoin is different for everyone,

It depends on their cost of electricity and the efficiency of their mining equipment.

Those who make a loss while mining (their electricity cost is higher than the value they get from selling their mined bitcoin) will usually just sell their miners to people who have cheaper electricity. Some invest in more modern hardware.

If many miners become unprofitable, the hashrate will go down, making some miners profitable again.

THere will always be someone that wants to do the mining.

Not only, but the retargeting will need more time reducing the coin mined every day.
If the hash rate dropped 10%, the retargeting would happen one and half day later and there would be 3240 coin mined per day against the 4200 mined today with an increasing hashrate (14K less coins in two weeks).
If the hash rate dropped 50%, there would be 52.200 BTC mined in 29 days instead of 104.400 (the network would not suffer a lot, because there is free room enough for double the transactions in a single block).
Take out 52.200 BTC from the market for a month and I think the price will rebound nicely.

This would lower the inflation rate to 9.7% annualized immediately, at the level of the current M1 rate.
Then (at a stable hash rate)  you would have two currency inflating at the same rate, but one (BTC) with increasing adoption and the other with decreasing adoption.

The "cost" of mining is only an average and is not the same for everyone. If the cost of mining 1 bitcoin is above the price of bitcoin for a long enough time period for a specific miner then the miner will likely be taken offline and potentially sold (if possible). As a result the hashrate will decrease a little bit (or increase less by a little bit). This process will continue until the price of bitcoin is above the highest cost of mining on the network is below the market price of bitcoin.

The only exception to this rule is when the cost of mining is prepaid (usually via cloud mining contracts), and these miners will stay online regardless of the price of bitcoin

My understanding:

Up untill now:
If mining cost < market price, miners will turn on machines, increase difficulty and sell at market price

Future:
If mining cost > market price, miners will turn off machines, lowering difficulty and try to sell at mining cost (where ask price may be higher than current market price!)

The last scenario could INCREASE MARKET PRICE

Each new generation of ASIC takes around 9 months of planning and development.

Meaning much money already invested in this cycle and reduction of hash rate won't happen until at least 9 months down the road.

The amount of bitcoins held by miners waiting for a higher price because they mined at a loss is not likely to be enough to make a detectable difference in the price.

depends on two factors:

1) How many % of miners mines at a loss at any given time. (I assume right now more miners mine at a loss, because the difficulty skyrocketed, but the price dropped, so that must mean many miners who once were profitable, no longer are). So, this one is looking good.

2) How many miners have the cash reserves to pay their expenses without having to cash out bitcoin? Because if they can't just wait for a higher price they will have to sell, regardless of price.

late miners are already selling their equipment coz they cant make profit out of it and unfortunately for them its also a negative income

Yeah, and most people is already late to mining bitcoin.
Becuase the diff. is too high, less people want to mine bitcoin
Expect bitcoin price raise up to the moon  ;D


Yeah, when the diff. low many miner comes, and when the diff. high many miner gone. And come back again to when diff. low happen  :(

At least they are able to salvage some money from it.

Well, when cost of mining is higher then the bitcoin they made, difficulty drop.. easy as that..

well so far my 1 BTC buy of $380.01 is holding...come on baby be the low rise rise rise

(No it won't work..but neither will my dreams of dating a super model unless bitcoin comes thru in 5-10 years ..
that makes one highly motivated to HODL let me tell you and still better odds the winning the lottery my
other long term investment shortcut :) )

How are production costs calculated? Don't you realize that production costs aren't the same for everyone? As mining become less profitable, the marginal winners (now losers), quit. So in the long run, just the most efficient miners will keep mining.

You'll need a couple more than 1 BTC if you want to date a super model. The only people dating supermodels will be the early adopters, we are peasants. Maybe we can impress Jeniffer the cashier at walmart with our 1 BTC investment.

What is BTM?

Well, either market price will rise again, hashrate / difficulty will drop, or both.

But I think it will not happen directly, because miners do not always strictly follow economic logic. So they could continue to mine, even if it's not profitable at the moment and simply hoard BTC while waiting for higher prices.

I don't expect another significant decline in price.

But those continue to mine will not sell at this price.

yes, what is it?

And regarding home miners not mining anymore, do not forget about those that mine to also heat their homes in the winter.. not everyone has gas heaters.

If they need cash to pay their electricity bills, they still might sell bitcoins.
They will continue mining until the price of bitcoins covers their marginal cost.

You are completely right.

Here is correct image:

Cost of mining 1 Bitcoin hits market price in Nov... What will happen?

https://i.imgur.com/IfcEAv7.png

Source:  https://twitter.com/bitpump/status/508179636816478208

As the difficulty rises, the slower and less efficient equipment will be replaced by faster and more efficient equipment. The hash rate will continue to rise, albeit at a slower rate. I believe that this is already happening -- lately, the difficulty has been rising at a much slower rate than last year.

Furthermore, if the price continues to fall, then the difficulty will eventually start to fall.

I would like to point out that we have already seen this play out with GPUs. Miners swapped out less efficient GPUs for more efficient GPUs as the were developed. We also saw the difficulty drop when the block reward halving made it unprofitable to mine with less efficient GPUs.

This has been discussed to death over in Mining Speculation. The general consensus is that it's correct. Mining is now unprofitable for everybody but very large scale miners with access to cheap power, cheap labor, cheap cooling, and cheap ASICs. If the difficulty continues to climb anywhere near the current rate, even they will be losing money by the end of 2014.

Nobody is clear on what will happen then. Will the big mining farms start to shut down? Will there be a period when all miners are losing money? Will the next generation of ASICs obsolete all the old mining gear? In any case, something big has to break by the end of the year.

In the last six months,  Bitcoin difficulty has gone to the moon, while Bitcoin price has gone nowhere. The amount of mining activity seems to have no effect on price.

"Late miners" are joining alt coins pools. When I hooked up a cpiple of my old Ant U1s to a peercoin pool, the diff was somewhere in 100s. Now it is in 400s.

Less efficient miners will stop mining to the point where the difficulty is low enough that the most efficient miners can continue to make a profit. There is no scenario in which all miners will stop mining. Nothing big is going to happen. As I wrote previously, we have already been through this.

In my opinion it is a very good thing to have the most hashing power up and running at all times possible to secure the network against hostile attacks.  This is a "tax" well worth paying.  I'd go so far as to say I'd support the idea of having government sponsored hashing power online rather than paying for it by trying to increase the debasing of the Bitcoin value.

This hits the mark. When the average cost of mining approaches the market value of bitcoin, less efficient miners will be taken offline, causing the average cost of mining to decrease.

The average cost of mining will all but certainly never actually hit the market price of bitcoin

That assumes that people are rational, but in reality people will mine bitcoins at a loss, so the average cost of mining a bitcoin may exceed the price of a bitcoin.

They may happen temporarily as people do not calculate the cost of mining on a real time basis. I would say that once a miner's electric bill arrives and it is determined that a miner is spending more on electricity then they are making via mining they would simply disconnect the miner and buy whatever coins on an exchange that they hoped to earn via mining

Speculation will keep a lot of miners mining, even if they are going into short term debt. As far as big mining companies go, they may also mine into debt based on speculation and then when their debt burden becomes to high they will most likely just seek more investors that will be willing to help cover the cost also secondary to speculation of a greater return in the future.

A little confused why you are using a BitMark chart yet I see no BitMark discussion, only Bitcoin?

We are early adopters comparing to future generation. So we are able to date super model in 10 years time.

At that time, the real early adopters will be ruling the world.  8)

That is right. I used to mine BTC at loss, I also mine some altcoin at loss at the moment.

I don't think it would make sense for miners to continue mining when the cost of electricity exceeds the value of the bitcoin they mine. If they wanted to speculate on the price they could simply buy bitcoin on an exchange for cheaper