Bitcoin Forum

Dead cat bounce - when is it going to stop?

And also - wouldn't you expect the difficulty go down? It's no longer profitable to invest in new mining rigs, moreover, many people are scarcely making any profit with such low exchange rates.

If things stay the same, it will. Takes time for people to recalculate (if they bother in the first place). Also, there's sunk cost fallacy, and delayed electrical bills to help stall miners from pulling the plug.

That's like gambling with borrowed money.

Well there are alot of small scale miners at around 300mh who would most likely never stop.
How often do you leave the lights on?  :P

No one really knows how many botnet miners there are, and miners who manage to put the bill on someone else (landlord, etc.)... they will mine at any price.

There's a little something called sunk cost, and it's by no means a fallacy: when you've already committed a large budget of money and time on a mining project, you can't simply pull out if you are not "living the dream". It makes sense to keep mining for as long as you can pay the power bill, any extra is passive income that goes towards amortizing your sunk cost.

A 2Mhash/Joule, 2Ghash/second rig  draws 1KW (24KWh/day) and earns ฿1.15/day at current difficulty.There are places (Canada) where you can get a KWh for under 5c, so those people will still be mining at 1.2$/BTC, even if difficulty does not change. Conversely, people who have quality hardware but expensive electricity will (20c/KWh) should pull the plug below 4.8$/BTC.

On the other hand disruptive technology could arrive any day now (ASICs), and easily increase the difficulty by an order of magnitude with no price impact.

You don't know a damn thing about what you're talking about. It doesn't matter how much you spent up front, if you're lose money, net, you should stop mining. Also, read once in a while. (http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_the_sunk_cost_fallacy)

So this means miners are stupid? :p

That aggressive tone is unwarranted - stopping from mining when you still earn enough to pay the electricity bill is a bad business decision. If you can't comprehend this simple fact then there's really nothing to talk about.

Indeed, continuing to mine when you can't cover current expenses is "throwing good money after bad" - what the Wikipedia article denotes as "Sunk cost fallacy". I thought you were implying that the whole notion of sunk cost is a fallacy.

Buying and paying off a card in this climate looks very tough and cannot be advised.  However, if you already have the hardware and you aren't so worried about hardware deterioration then mining is surely still quite profitable.

My miner is still (price = 4.8 USD, difficulty = 1755425) just about beats electricity and not only do I pay the equivalent of about .17 USD for each kWh of electricity but my dual 5850 miner is currently housing an AMD Phenom II x6 1100T: overvolted, overclocked to 4.0 GHz, and running at 100% on all cores.

Perhaps some people have much higher electricity costs or are still trying to mine with Nvidia cards but I'd imagine the bulk of the miners are comfortably covering their electricity costs with their earnings.

The intrinsic value is bitcoins is their use as an uncontrollable internet monetary system and their brand recognition as being the first to do this.  This in itself is what gives bitcoins their value.

If short run marginal cost is below what you can sell for, you produce more.  You hope to recover your "sunk" cost over the life of the project.

My cats still like the warmth from the computers.

I'm so sorry guys, but is this forum just full of a bunch of illiterate fools? If you read anything in this post, read the big bold line.


Nah, just you.



God, I wish my tone was unwarranted, but it sometimes reminds people to go back and read the OP. Clearly not in any of your cases. Maybe I can help you with that. Just read the bold bits:


And my response:


In other words, it doesn't make sense to mine if you are losing money doing it. Yes! That's what I said! And I only had to read the OP once! I bet you can figure out what this all means, Patrick? Well, let me help you along: If the short run marginal cost is above what you can sell it for, we will be seeing a difficulty drop. Indeed!


Thanks for actually participating, Teukon. No sarcasm at all.

http://www.youtube.com/watch?v=y8Et28kBi1A&feature=related (http://www.youtube.com/watch?v=y8Et28kBi1A&feature=related)

BitMagic - stop being a douche. lol

Everybody here agrees that a new GPU mining rig is a bad investment. However most people are not loosing money on the short run, they are making electricity and something extra - just read my numeric examples. This is the complete quote of the OP, the important part bolded for your reading pleasure:


The fact of the matter is they are still making profit (in the EBIDTA sense), low as it may be, and as long as this continue they can't stop mining(*). Some of them are still underwater because the unamortised initial hardware costs, but that's rather irrelevant - they continue mining to minimize the total loss.

(*) Truth be told, this analysis is incomplete if you don't factor the opportunity cost of liquidating your setup and selling the hardware on eBay. The decision to do that may or may not make sense depending on your personal present value of cash money and the anticipated resell value of hardware. Anyway, if you decide to liquidate you should do it sooner rather than later, and maybe sell it to some other sucker who wants to get in the mining game (sort of like the GPU ponzi scheme). My psychic powers predict a huge glut of graphic cards hitting eBay in about 6 months time - that's what under 1$ prices or ASICs or both can do.

Sorry, BitMagic, but it looks like today is your day to be the idiot.  There are many reasons to participate in the experiment called BitCoin besides making money, and these alternate reasons are perfectly valid and make sense.  Just because it doesn't make sense TO YOU with YOUR value system and needs RIGHT NOW, doesn't mean it doesn't make sense to others.

In fact, for most of bitcoin's existence, mining has not been immediately profitable, and the past few months are an anomaly.  I don't know how you can be here and not have noticed that bitcoin was primarily designed to facilitate freedom and privacy in financial matters, not as a way to make money by mining.   Ironically, it's because of the early miners that mined when it didn't "make sense" that you are now here, loudly advertising your ignorance by saying it doesn't make sense to mine if you can't make an immediate profit.  I give away money all the time, and I suppose that doesn't make sense to you, either: it's called donating. 

If all you want to do is safely invest USD with a guaranteed short-term return, go buy a treasury bond, and stop using 15 point bold font to annoy us with your myopic viewpoints.

Yes, people keep talking about rational actors, but you can't think sensibly about rationality until you've pinned down the goals.  The implicit goal when someone talks about rationality in this forum is fiscal acquisition, but that is a bit silly.  There are people who are going to mine bitcoin even if the exchange rate is 1c/BTC, because they like the idea.  On the other hand, such people are less likely to dump all the BTC they mine into an exchange for fiat currency.

I think the high volatility is the primary obstacle to the wider adoption of bitcoin, and the primary reason I speculate is to help reduce exchange volatility.  I'm happiest when I see that one of my buy or sell orders was partially filled before the market switched directions, meaning that I "shaved the peak", so to speak, off the market rally or the drop.

Boring though it may be, I hope the market stagnates between $4.80 and $5.20 for the next few weeks to months, and allows developers and users to get a taste of price stability.

I witnessed a dead cat bouncing once.  Quite impressive.  I didn't even know this english expression at that time and I thought it was surnatural or something.  I think I saw it bouncing on the road at least ten times.  I thought it would go on forever and I actually didn't see it stop as I had to leave the place.

Excellent work.  I do hope more traders can keep shaving off these peaks and predicting this market successfully.  The volatility scares too many potential users off.  I'm often trying to send money to someone and asking if they accept Bitcoins.  In only four cases in the last few months have I had a positive answer from people that would otherwise not be involved in Bitcoin at all.

If the market were much more stable then more people would be willing to start accepting Bitcoin and I'd have a much easier time with payments and donations (Transaction fees and comission (GBP -> USD) are not fun when all you want to do is donate).  People who get into the Bitcoin market and trade purely for profit are doing Bitcoin a great service (provided of course that they are successful) and they have my thanks.

People who believe they will have the opportunity to sell once again at higher prices wouldn't - nor shouldn't - stop mining. Most miners aren't living paycheck-to-paycheck, and just because the incremental bump to their energy bill is not offset by the current price of BTC doesn't mean they won't eventually turn a profit. What really matters is ROI.

Short term losses are offset by recovered in future profits. Wise miners won't quit until there's no hope of ever recovering their investment.

-Jix

Or just by doing a bit of trading ;D

Bitcoin isn't too stable but so is everything else including the USD, in fact nowadays, nothing is stable.

Do those people derive an utility proportional to the amount of BTC mined ? Are they willing to  dump thousands of dollars into mining equipment that does not recover it's cost, as opposed to some casual CPU mining ? Are they capable of covering this financial loss for a long period of time ? Do their wives agree ? Sure, hobby mining at a loss might continue, but I'd say it's has a negligible contribution to the difficulty.



When the revenue drops bellow the energy bill you must stop mining immediately. There's no point in buying overpriced bitcoins via your energy bill when you can buy them cheaper on the market. If you would eventually turn a profit by continuing mining, you stand to gain even more by stopping mining and buying coins on the market (because you can buy more for the same money spent on electricity; or buy the same amount as you would have mined, and pocket the dollar difference).

Profits from predicting the future price of bitcoins are speculative, the revenue for mining is simple arithmetic. Can't believe people still fail at this after the topic has been talked to death in hundreds of threads.

http://bitcoin.sipa.be/speed-small-lin.png
Mining peaked at the end of July 2011.

The difficulty is declining, trailing the decline in mining by about two weeks.

The mining peak trailed the price peak by about 6-8 weeks.  The mining curve overall looks like the price curve, but delayed 6-8 weeks. That's an indication of how long miners will keep working once mining becomes unprofitable.

Right..... I totally fail at this topic.

Of course future Bitcoin price is speculative! That doesn't mean a miner "must stop mining immediately." I very clearly targeted people who BELIEVE the price of Bitcoin will once again rise above energy costs.

If you want no risk income, well, you probably wouldn't have started mining at all, since the original hardware investment would've been a risk. If your hardware is paid off and you only want a guaranteed return, sure by all means, stop mining. But if you're like many of the rest of us, who BELIEVE bitcoins will one day be much, much more valuable, to stop mining now would be to miss the opportunity for more coins.

Every investment involves weighing risks and rewards. This is no exception.

-Jix

If merchant A is selling bitcoins for $5 and merchant B is selling bitcoins for $6, which one would you buy from?

If merchant A is selling bitcoins for $5 and merchant B is selling bitcoins for $6, but you spent $2000 to get a premium account at merchant B, which one would you buy from? (Remember, if you don't use that premium account you're wasting your $2000 investment)

If merchant A is selling bitcoins for $5 and your miner is producing Bitcoins at a cost of $6/BTC, would you mine or buy?

If merchant A is selling bitcoins for $5 and your miner is producing Bitcoins at a cost of $6/BTC, and you've put in $2000 in your rig, would you mine or buy?

@iamzill

They sell bitcoins on eBay for twice the price they normally are.  But that's at the risk of selling them via PayPal.

Those sales on ebay are either scams will never go through (only idiots would pay $10 when they can pay $5).

 I'm talking about 0 risk transactions here that have huge liquidity and thus happen instantaneously. Just imagine merchant A = mtgox.

@iamzill

I hear on other forums people complaining that they can't buy bitcoins with a credit card and how difficult it is.  And I hear on this one that people are able to make money doing it and don't get that many ripoffs if they only sell one coin at a time.

Indeed. My displeasure stemmed not from your inability to understand after all, but rather your choice to ignore the piece of the OP I was working from. With a conditional statement. I'd like to hear more about the above, though. Lots of room in this debate for whether or not it's actually profitable.


Lol. You do realize you're in the "speculation" subforum? Just curious if you can even read the big words at the very top, now.


Again, without a basic understanding of utility, you have nowhere to stand arguing in this subforum. Go look it up, seriously. I have no problem with ulterior motives besides profit for miners. I was only responding to the (OP's presumed, hypothetical) factors driving them. Your reading comprehension is called into question, once again.


And there are people like me who could care less about its success as long as I'm betting on the right side for profit. I see a large, generalized outcry about the "commoditization" of bitcoins around here, as if the existence of transactions outside goods/service exchange is the demon of your pet project. 1) Not very libertarian of you, and 2) not very possible.


"I have no overhead so I always make a profit." i.e. "I steal my power, so who cares?!"

Why not?

This doesn't logically follow.  I don't pay the power bill where I live and that is not my own choice.

Also, what if I did live somewhere that I was in charge of the power bill, and I used all solar power?  Or wind?

Yes, the OP talks about investing in new equipment, and how it might not be logical to invest when the short-run price is below long-run cost.  However, this occurs often.  In a field I work with (electricity markets), people will spend $500 million on a power station with a long-run cost of $100/MWh when the price is $50/MWh even though it is not logical to do so.  They should wait until the price is higher.

However, once built, and with a SRMC (short run marginal cost) of $30/MWh, they have a marginal positive benefit when the price is above $30/MWh.  i.e., if the the price is $31/MWh, run the damn thing and make a $1.

For bitcoin mining, if the price of bitcoin is greater than the short-run cost of production, people will mine, hence the focus on electricity cost.  But it doesn't make as much sense to buy more hardware.

And the cats have both a sunk cost and a variable cost, but not much bitcoin output - I should turn them off (no, I don't think so).

Love to hear how you expect a new currency to take hold if you can't exchange it anywhere. And I think it's pretty obvious that as soon as there's an exchange, there are people willing to take advantage of arbitrage.


No deduction necessary, I was stating fact (http://bitcoinscene.org/threads/5-Are-you-still-mining/page2).

Your "fact" is not anything like my personal situation.

And as for exchanging BTC at places for things -- I do it all the time.

And, what's the problem with a little arbitrage?  Have you visited bitcoinica.com?

I am tired of being a jerk, so I'll just explain normally.

I was responding to two individuals (old_engineer and fivebells). I was pointing out that their general sentiments ("You can't talk about economic rationality with bitcoins! Bitcoin is about faith and love and backless currency and...!") was a joke because it 1) flies in the face of both libertarianism and 2) you can't really have a currency as bitcoin purports to be without an exchange market and arbitrage.

I know at least old_engineer wasn't being that literal; they were just making counter-arguments about other valuable uses and utility gained outside of profiteering. None of which I dismiss. I was just calling to attention the general attitude that many have here: that speculation is undesirable. My argument: unavoidable (and read better, please).

I actually only use bitcoinica. There isn't really anything worth purchasing with BTC at the moment for me, and it's volatility makes using it as a currency pretty dangerous for my bank account. 

  Mmm, strawman.

You dismiss any behavior that isn't right for you as "doesn't make sense" or "a joke".  Are you against people being gay, too?  How about people you don't speak your language, do you expect them to learn English?

"Myopic" continues to apply to your viewpoint.  Speculation applies to more than just profit-maximizing behavior, and in fact I made clear that I speculate without attempting to maximum profit, but rather to minimize volatility.
1) who cares if my viewpoint isn't a liberarian one?  Sure enough, I'm not much of a libertarian, but I hear there are many around these parts, and it's just one of many valid reasons to participate in the bitcoin experiment.
2) exchange markets are but one way of trading currencies.  I used to trade on the #bitcoin_otc, and that works fine.  Assuming you live in the US (as most myopic people do), it's likely you've never been to an exchange.

Your criteria are neither necessary or sufficient.  Mine are not necessary, but they are sufficient as they work for me and others.  QED.

Kuhn-Tucker conditions - necessary and sufficient.  Necessary to ignore because it is sufficient that it is late and I've been drinking - mmmm vodka/lime.  My previous cat liked malt whiskey.

btw - old-miner has it right - it works for him, and that is sufficient, therefore not necessarily optimal, but constraints satisfied, therefore an interor solution to his multi-dimensional problem.

 No, but I'm against woolly thinking and personal attacks like this.

http://i269.photobucket.com/albums/jj68/lonestar_387/smiley-yawn.jpg

Yeah, have a re-look at your posts, and tell me you weren't, in general sentiment, attempting to tell me how my boilerplate, narrowly defined economic arguments (in response to a single premise in the OP, no less) were moot because "BUT THIS IS BITCOIN!".


I'm assuming this is directed at me and not fivebells, because that would make the most sense. I directed none of those points to you, only Crypt_Current, who presumably wanted to know why I thought bitcoin would never exist as a useable currency without speculative behavior in any sense, regardless of exchange venue. I threw that libertarian bit in there as a joke.

Seriously, old_engineer, you're just reacting to my abrasive call-out that you just can't read (or quote) appropriately. I don't disagree with a single thing you've said. You're still doing a terrible job of showing me you can "read good", though. See fivebells, below, for not even realizing you were quoting the wrong dude as the nail in the coffin: you dumbasses couldn't recite the alphabet.

LOL BURN, XD

i no, rite? XD XD XD XD XD