Bitcoin Forum

Let's entertain this argument for a moment.

1) You buy mining gear with fiat that is not needed elsewhere. As this fiat was available there is no need to dump coins in a bear market. Wait for next ATH. Net market pressure: Up.

2) You take a loan, mine and sell regularly to pay the loan back. You do not sell 100% of them regardless of price because you did your calculations beforehand. The coins you do not sell are now unavailable to the rest of the market, increasing scarcity and therefore price. Net market pressure: Up.

3) You are bad at math and mine at a loss. You either turn off your miner or bleed money until you end up in the gutter. Net market pressure: Down, but temporarily.

Not being a miner myself, it's possible I missed something. But so far, it looks like sustainable mining is good for the price.

I'm actually looking to be proven wrong here. But with logic and numbers, not trolling. Thanks in advance.

Sounds like a good analysis to me, but unfortunately there are a lot in group 3. These will go out of business soon, and the horror stories will stop people making bad fiat investments in mining rigs, and take the pressure off the price. On the plus side it's getting easier for people to enter the market now with the relatively low prices.

Imagine you and your friends are all miners who took out $50k loans to buy nice mining gear in the Fall of last year. You're the one who mines and only sells to cover his fiat loan. You interact with these friends and colleagues every day, and they all talk about how they've been selling everything as they mine it.

Your first month of mining was in December of 2013 and after selling to cover fiat expenses, you made a profit of 50 BTC.

Your second month of mining was in January of 2014 and you made 40 BTC.

Your third month of mining 30 BTC.

Your fourth month 20 BTC.

You go to a miner's consortium in early April 2014, and your friends talk about how the price has fallen so much, they were glad they were selling. Turns out they made the same kind of profits but sold right away, here's how they worked out...

December 2013: 50 BTC sold at ~$1000 each for $50k
January 2014: 40 BTC sold at $800 each for $32k
February 2014: 30 BTC sold at $600 each for $18k
March 2014: 20 BTC sold at $500 each for $10k
Total in Fiat: $110k

So time comes around to where they ask you how you've been doing. You say, fine, things have been going great, but you're thinking it's time to shut down here in a few months, you're not sure of the future profitability. Your friends turn to you and say they actually have plans to close out their loans and liquidate their hardware next week and just pocket their profits, too. They owe about the same amount, $50k for the mining equipment, and they ask you if you'll be closing out your loan, too.

You made a handsome 140 BTC, but you realize that in order to finish off the loan, you'll need to cash out of nearly all of it at ~$400 ($56k), and you'll pocket a whopping $6k in profits. You'll get a lot of "oh man that's too bad" from your friends, but at the end of the day, they'll be the ones walking away with the bigger profits.

Yes, you could cover loan costs in fiat from a day job, but you're still realizing that the guys who sold made more money. Now, imagine this same Miner's consortium among you and your friends happened in January instead. Would you still have not sold immediately in February and March?

TL;DR: Pressure comes to sell eventually for miners, especially if they have loans. The market can remain irrational longer than you can remain solvent.

Thanks for opening this thread!!

'Wait for next ATH.' What if you aren't a seasoned crypto-geek? What if you aren't sure there will ever be an ATH? If your enterprise is returning ten percent today on the coin mined, you sell it in this 'bear market,' and buy more equipment to mine with.

The fly in the ointment here, Ibian, is perhaps the notion that the 'fiat is not needed elsewhere.' The sorts of people who set up profit-oriented enterprises want profit on the money invested, and very often they want it immediately.

Mark (IndiaMikeZulu), Australia

if you dont pay for power or your rig is low power, then it throws half your theory out

As large miners have to pay electricity bills and the price of bitcoin keeps downtrending, they continually have to sell larger percentages of their mined coins to cover their operational costs (warehouse, electricity, maintenance etc) causing a downward pressure.

Op, your logic is invalid. The mining industry is not holding bitcoin. Mining and Holding are two different things.
that's basic business practice, but you seem to be lacking knowledge about it.

So yes, miners are dumping thousands of coins every day
the fact that you like it or not, in the other hand, is irrelevant  ;)

and you seem to possess unlimited knowledge about it drawn from a pool of your imagination.

You sell your BTC on the market until it is no longer profitable. You do not want to sell at a loss, so you accumulate for a while. You might get together with your mining buddies and it turns out they are in a similar situation. You agree to the short the market and dump like there is no tomorrow. You take your shorting profits and buy even faster mining gear while congratulating yourself that you are now one step ahead of the competition (the small mining operations).

Great point.  It's nice to see that bitcoin mining tech is given a chance to catch up, I've been thinking about getting in the game for a while now...

when would anyone of you spend abit of time and learn economy?

Because thread like this shows many of you are just dumb as fck.

Here is a simple fact for you:

All the money ,invested into mining, in fact goes into bitcoin eco system

The selling pressure that you see means the cost of producing miner has been higher market price of btc and thus profits. The selling will stop when it reach marginal profit  (equilibrium). Even manufactures still lose money if they make products that cant sell.

Simple as that.

If you're in semiconductors industry, you would see at the current price level, the manufactures arent gonna pumping out miners any more. Its profit is slim to none now.

 

'The selling pressure that you see means the cost of producing miner has been higher market price of btc and thus profits.'

On behalf of all the dumb-as-fcks here, seriouscoin, please allow me to thank you for your rude and poorly-worded-and-punctuated post. In future, we shall all cower mutely in the crypto shadows, lest we offend you.

Mark Blair, Unicup, Western Australia

I think that it's very difficult to speculate on this sort of thing. I believe that there are mining outfits that have access to cheap, up-to-date equipment and electricity. There is no comparing those large-scale miners to retail miners. I think such operations are likely able to sell at this level with significant profit.

Pretty sure the number is the mid to high hundereds of coins, and not in close to total production.

That would be hobby mining.
Hobby miners can obviously obviously do as they please. They could sell or hodl. The distribution is obviously up for debate. Assuming hobby miners account for a total production of 1000BTC a day and 50% sell that would mean 500BTC entering market a day (fiddle with those number as you want).
Net effect: slight downwards preasure on market.
Even assuming no one sells coins the market pressure is simply neutral (supply and demand on exchanges isnt changed).

b.) Farms have expenses and can only burn through so much fiat before they have to sell at least some. I expect them to sell mainly off market. E.g. KNC advocates the concept of "clean" coins, that is freshly minted untainted coins, and says those should be worth more. Since there is no way to sell those at a surchage at exchanges they will sell offmarket.
Net effect: Coins sold off market dont directly affect price on market, but reduce demand on exchanges (since buyers did not need to visit them).

That would be those "gold rush noobs". Funnily enough there actually seem to be quite a lot of those. Since a lot of miners sell used mining gear on ebay etc., at prices which look like a bargain compared to original price but with no chance ever even getting close to a net ROI. Since thats mostly used equipment the effect on BTC supply is fairly low. Possibly there is a psychological effect though, being basicly scammed (being sold a "gold shovel" that has no reasonable chance of getting the investment back may inspire that feeling) and never considering using BTC again (and possibly even warning others).

Had a 2012 BFL preordered rig myself. Back then, even at ~$10 per coin, it would have been a fantastic investment if it had been delivered in a timely fashion.
I think the main fallacy you make is that you consider freshly mined coins that arent sold on market as upwards pressure. Its simply preasure neutral, since coins dont enter market. It could actually even be considered donward pressure, if fiat was spent to make the purchase, since it could have instead been used to actually buy coins on market.

NP. Basicly i agree with that "miners selling thousands of coins" (at least on exhanges) is probably bullshit. On the other hand i dont know if that is actually good news, since it raises the question of what happens if miners actually have to sell thousands of coins. Assuming e.g. that in case 2) a farm will only sell enough of market to cover running costs the amount sold will naturaly increase as price goes down, while at the same time expenses to gain the coins go up (hashing rates increases, either invest more in equipment have a reduced share).

Sure, but then again the story would have been flipped if we had started at a low point and gone up from there. The market is a fickle mistress, but as long as mining is actually profitable it's still the equivalent of buying under market value. One of the things that needs to be taken into consideration before actually ordering the rigs.

Sure, and there were times when mining was insanely profitable. Lucky are the people who had an ASIC in early 2013.
And while mining investments obviously follow market price (if its worth building someone will build a "money printing machine" after all), there is a large lag. Chips have to be designed, wafers made, machines built and tested. Equipment that was planed during last years spike has only hit the supply chain very recently (cough, BFL Monarch).
What would have been very profitable during the last spike at those difficulty levels may be a pretty bad deal by the time it arrives.
And thats why you cant just "order a rig". As a customer you either pre-order (and cross your fingers) or hope the landscape doesnt change too much by the time your gear goes active (in case of a farm).

Generally, yes but when the accessibility of asics are on a level of plug and play and people only required to have money to have their equipment (be it physical or virtual) the majority of them might not know better and just dump as they go. Same could go for bigger scale mining operations as well. Maybe too many of those people jumped in half assed a few months ago and now grasping for air. And I guess we also can't connect the price and the difficulty because with better and better asics it's technically cheaper to maintain the same difficulty.

If it is truly about the miners dumping more than before, my uneducated guess is that we're looking at a long period of downtrend - if nothing major would affect the market one way or the other, but there's something always going on.

This is not a real problem , they have to pay the electricity cost , so why not sell thei mined coin every day ? Do you want to pay their electricity cost  ;D ?

Now mining are much more centralized to a few mining farms instead of millions of users at home. While those users can easily pay for the cost and hold the coin, the mining farms have to pay for large amount of electricity and cooling cost (and even loan interest) by selling coins, so I guess the sell pressure will continuously rise until many of those farms are forced to shutdown

maybe they want to pay for bitcoins using electricity?

 pay for bitcoins using electricity OR  pay for electricity using bitcoins

one of lifes gr8 mysteries

Good points

I doubt if there are still some people that buy mining gears to mine coin and dump them directly, this is a proven way of going broke since April

See my signature, the daily coin supply will increase in the coming years, due to more and more early investors starting to cash out part of their coins. This increase will stop at next reward halving, which is still 2 years away

However, the demand side is picking up very quickly. As a bitcoin broker, I can feel that the daily net purchase fiat volume is almost 4 times bigger than last year

Let's say you're right, Ibian ... Let's say the decreasing price isn't primarily caused by miners dumping hundreds/thousands of coins every day ...

Then what, exactly, is causing the price to fall so much, week after week, month after month? You still haven't explained that, as far as I can tell?

To be fair: Miners dumping thousands of coins isn't the only reason BTC price is falling (and will continue to fall), but it is indeed one of the primary reasons.

Of course miners selling coins affects the price.  If there's insufficient demand to absorb the new coin supply, then the price will fall until demand picks up.  This is bitcoin's distribution system doing what it's designed to do: distribute coins to those who value them.    

Bitcoin is a strategizing woman that will use your lust to accomplish her goals.  It's your desire for wealth that precipitates the boom, and it's your hope and envy that fuels the accompanying media frenzy, propelling us another rung up the market-cap ladder.  And she knows this.  She also knows that in your despair you will sell your coins to those she hasn't dated yet, as though you're burning love notes from a woman who broke your heart.      

She has nobler goals than to enrich you.  Although some of you will score and some of you will strike out, to her you were all only useful tools.  We're building a new decentralized economy that, if successful, will reshape the world in unfathomable ways.  She's the foundation of this new economy--sound money where each coin was forged by the greatest physical efforts of man to strangely produce a purely-digital asset…a digital asset that can be transferred in less than a second across the world without the permission of an authority or the assistance of a third party.  She is an evolution in money.    

Indeed the price must grow for the experiment to succeed, but it's more important that the price be the right price to best distribute coins to those who want them.  The issuance of new coins is what keeps downwards-pressure on the price, testing the faith of hodlers: "why are your coins so special if miners are finding new coins everyday?"  It prevents the price from deviating too far from true demand, as ruthless miners will put to rest the ambitions of lustful.  This is necessary.  We're all just playing out our roles.  

How will it end?  I don't know.  Tales of great ambition are fraught with great tragedy.  Only time will tell if she'll seduce her way to the very top.    

+1. Haha, I really love this post Peter.

I like your first point, fiat analogy is a spot on.

do you have any idea how much a modern miner uses in electricity monthly?

some of them use hundreds of dollar per month, just to stay working.

The mining community never seem to run out of suckers. This phenomenal of "mining at a loss" has been going on for a while now.

So is this a real solution ?

A large mining operation most likely has some staff able to do good TA. For them it matters when they sell in order to maximize profits.
If the TA staff sees a clear downtrend for the next month, they may decide to sell all currently mined and some of the stash, to have fiat for bills until the recovery.

I would assume simply dumping like 500 coins a day would be sufficient to explain the recent decline. If the amount of fiat entering the exchanges is very low (and, to be fair, its not like there has been any mayor news to attract anyone) the exchanges would bleed aroung $6M per month just from those 500 coins a day. Distribute 15k coins evenly among the exchanges (simply use a the "Estimate trading" tool on bitcoinwisdom to calculate it for you) and look at the results. Pretty much in line with what we are seeing. You know, simply applying Occams razor ...

Beautiful.

(maybe just a tiny bit sexist as well, but mainly: beautiful :D)

if i were a chinese billionaire\millionaire who want to leave China with their wealth then bitcoin mining would be a perfect solution.
You buy the mining hardware and pay everything with yuan and get dollar after selling bitcoin 

the price does not matter,  so you will countinue to mine with a loss too , (if the mining cost of 1 BTC is more than its price)  10%-20%  no matter  ,
who cares , if you can convert yuan to dollar without any limit

Yeah great post, so unlikely here! Most people don't understand this and actually think She owes them something and then get pretty pissed when She does not deliver. Good thing is, there is nothing they can do to even scratch her :)

PS I never thought of bitcoin as her, maybe you are right :) She does have some wild mood swings.

^ Exactly this is the point! Now imagine you have a mining farm and can provide this special kind of relocation assistance service to wealthy Chinese countrymen.
I have read an article a few days ago that some Chinese miners even use "free" electricity by installing rogue mining farms in government-owned facilities. The minted bitcoins can be bought in Yuan, transferred to foreign Exchanges and converted to USD. This business model could work for a very long time, even if the BTC is down at 50$ or less and difficulty goes up even higher.

this is a non-issue for people holding Unobtanium

inflation is a fact and can be pinned down exactly in coins.

See my other topic on this:
https://bitcointalk.org/index.php?topic=793049.msg8933157#msg8933157

fiat has inflation. Bitcoin  has lower inflation than fiat. Gold has inflation too. Unobtanium has the lowest inflation of them all.

Discussing if miners sell or hold the coins they mine is really useless. Expect them to sell now or later.

"Tradevolume divided by new coins minted" was bitcoin around 18 to 1 yesterday (globally). Uno was approx. 22 to 1 today on tiny volume compared to bitcoin. Other coins high on the "tradevolume divided by new coins" indicator are LTC and DRK.

just divide tradevolume by new coins minted to estimate how big the impact of that inflation is.

Demand vs supply.

Life can be so easy.