Bitcoin Forum

Economy => Economics => Topic started by: Vasco on April 20, 2011, 05:04:29 AM



Title: The value spike... c'mon, you all noticed it!
Post by: Vasco on April 20, 2011, 05:04:29 AM
What's the deal with the quick rise in the value of BTC the last week or so? I remember about 3 weeks ago it was less than .88 USD and now its bypassed the US dollar and is at 1.17-1.19 USD depending on the market.

Is this type of rise typical? What is the all time high of bitcoin? It seems that it has hit 1.20 before. Do the math wizards on this forum predict a consistent rise in the value BTC? Is it ever going to drop below $1 again? I have seen speculations on blogs that are predicting the possibility of $10 USD per BTC. Is this feasible? Will the value of a BTC hover over the price of the USD or will it drop again?

These are just thoughts I have had, as once I saw it surpass the USD I was amused at how even though BTC has no precious metal backing (just like the USD) it is still held as more valuable.  Does this mean the US dollar is really that weak? Or does it mean that BTC is really that strong? Both perhaps?

I'm new to this, I've only been following it for a few months now, so I'm not sure what the more experienced bitcoin veterans have seen.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: N12 on April 20, 2011, 05:08:44 AM
Whether itís 0.1$, 1$, 10$ or 100$ is arbitrary and purely determined by supply and demand. The supply side is fixed and the inflation rate known. If it was 2.1 million BTC max instead of 21 million, the exchange rate would be 10$ now.

The exchange rate has risen now due to increased demand that surpassed supply and inflation.

For historical figures, check the charts on http://bitcoincharts.com.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: kiba on April 20, 2011, 05:13:39 AM
Here's how I think about it:

Bitcoin price as bitcoin does. There is no use to amuse ourselves with trying to predict the price of bitcoin in the short term. It's random and noisy and it's very hard to gather the necessary information about the future.

Uncertainty is part of life. So don't try to connect events to reasons because very likely you are just wrong.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: error on April 20, 2011, 10:24:50 AM
Maybe that guy who wanted to buy 100k BTC at 2 USD started buying.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: marcus_of_augustus on April 20, 2011, 11:02:05 AM
Maybe that guy who wanted to buy 100k BTC at 2 USD started buying.

I think there maybe more than one, looks to me like we just went through a mini bidding war ... taking a breather for now though.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Mahkul on April 20, 2011, 11:14:30 AM
Price vs. the 'long' term trend shows a standard deviation of about .36, which means it is not improbable that it may drop back below $1 based on the available statistical universe.

If you believe that trend it could still be years before we see $10/BTC, but it is a fair certainty that we will eventually see those levels and much higher IMO. As it has been mentioned, how fast that happens really depends on the growth of demand.

You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: marcus_of_augustus on April 20, 2011, 11:28:15 AM
Price vs. the 'long' term trend shows a standard deviation of about .36, which means it is not improbable that it may drop back below $1 based on the available statistical universe.

If you believe that trend it could still be years before we see $10/BTC, but it is a fair certainty that we will eventually see those levels and much higher IMO. As it has been mentioned, how fast that happens really depends on the growth of demand.

You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.

Yes, it has been troubling me, because I don't really have much of a clue about how that would affect the market other than to force it up. But by how much? Twice the rate? I don't know. For the sake of having numbers to look at that's what I have plugged in, but I have a feeling it could be a lot higher.

I'm kind of considering like an afterburner type of effect for now .... widespread awareness will be getting near to a peak, or saturation, and if it is still alive most of the bigger threats will have been taken on imo.

Jan 2013 and the neat fuel gets dumped into the exhaust when bitcoin entering circulation halves, it could create chaotic scenes if demand is still powerful (growth continued at current exponential rates) and weakened state currencies, bonds and credit markets are sensing a disruptive force.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Raulo on April 20, 2011, 11:29:18 AM
You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.

By the time the reward gets halved, the difficulty will increase at least 10-fold and, therefore, reward per compute unit.  I think nobody should really care right now about halving the reward.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: deadlizard on April 20, 2011, 12:20:53 PM
You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.

By the time the reward gets halved, the difficulty will increase at least 10-fold and, therefore, reward per compute unit.  I think nobody should really care right now about halving the reward.

Yep, Halving the reward in 2013 is an old news and as such is priced in already... Best to ignore...

nothing to see here, move along  :D


Title: Re: The value spike... c'mon, you all noticed it!
Post by: tomcollins on April 20, 2011, 12:55:59 PM
You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.

By the time the reward gets halved, the difficulty will increase at least 10-fold and, therefore, reward per compute unit.  I think nobody should really care right now about halving the reward.

I care, and I think most miners care. My best projection places Difficulty near 900,000 come Jan. 2013. That means your average 5870 core could take 20 weeks, on average, to solve a block. If fees+$/BTC does not  compensate for this a lot of miners could drop out, and starting a new mining operation with current technology could become unattractive. Maybe Difficulty will even plunge once the block bounty halves. But this will depend largely on what happens with $/BTC. Right now it looks like we could be averaging $3.20/BTC by then. But as to what happens after that, I'm taking a mostly wait-and-see approach.

Is there a precedent we can draw from to make a projection?

New mining operations are already barely profitable.  Unless you have free electricity.

You could get more BTCs buying them on the exchange than creating a rig and running it for the same cost.  But you couldn't resell the hardware when you are done, but even then I think you come ahead just buying the coins.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: ptd on April 20, 2011, 01:17:34 PM
New mining operations are already barely profitable.  Unless you have free electricity.

You could get more BTCs buying them on the exchange than creating a rig and running it for the same cost.  But you couldn't resell the hardware when you are done, but even then I think you come ahead just buying the coins.

Woohoo! The free market has done it again!

What people don't seem to realize is that price drives difficulty, not the other way around. When the block reward halves, difficulty will halve as well .

If the difficulty is too high (mining makes a loss), people will stop mining. If difficulty is too low (mining makes a profit), people will start mining.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Littleshop on April 20, 2011, 02:16:15 PM
New mining operations are already barely profitable.  Unless you have free electricity.

You could get more BTCs buying them on the exchange than creating a rig and running it for the same cost.  But you couldn't resell the hardware when you are done, but even then I think you come ahead just buying the coins.

Woohoo! The free market has done it again!

What people don't seem to realize is that price drives difficulty, not the other way around. When the block reward halves, difficulty will halve as well .

If the difficulty is too high (mining makes a loss), people will stop mining. If difficulty is too low (mining makes a profit), people will start mining.

And the free market seems to be working well here.  Difficulty increase has slowed but is at a pretty high level.  I think it will slowly increase now as miners start in areas with cheaper electricity and force those out in areas of expensive electricity.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: FooDSt4mP on April 20, 2011, 04:03:29 PM
New mining operations are already barely profitable.  Unless you have free electricity.

You could get more BTCs buying them on the exchange than creating a rig and running it for the same cost.  But you couldn't resell the hardware when you are done, but even then I think you come ahead just buying the coins.

Woohoo! The free market has done it again!

What people don't seem to realize is that price drives difficulty, not the other way around. When the block reward halves, difficulty will halve as well .

If the difficulty is too high (mining makes a loss), people will stop mining. If difficulty is too low (mining makes a profit), people will start mining.

Once miners like myself grow large enough to be able to buy electricity on half hourly auctions and mining at night and/or not mining at peak hours the hobbyist are going to be driven out of the mining market and I bet it will happen by 2012-2013. Basically my prognosis is that price and difficulty will converge somewhere below price of electricity during the day and price of industrial electricity at night. Also if a miner got DC with PUE way more than 1.1 it will be mining at loss. Enjoy mining while it lasts. But yea... nothing to see here... move along people...




And due to the infrequency of difficulty updates, this is entirely possible and would result in all transactions backing up during the day and being processed at night.  Goodbye short transaction times.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Nefario on April 20, 2011, 04:09:52 PM
And due to the infrequency of difficulty updates, this is entirely possible and would result in all transactions backing up during the day and being processed at night.  Goodbye short transaction times.

This must be "globe of US syndrome"  ;) Did you know that while in US it is daytime there are places on this planet where it is night?



No way.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: FooDSt4mP on April 20, 2011, 04:10:50 PM
And due to the infrequency of difficulty updates, this is entirely possible and would result in all transactions backing up during the day and being processed at night.  Goodbye short transaction times.

This must be "globe of US syndrome"  ;) Did you know that while in US it is daytime there are places on this planet where it is night?



No way.

Palmface


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Alex Beckenham on April 20, 2011, 04:22:03 PM
And due to the infrequency of difficulty updates, this is entirely possible and would result in all transactions backing up during the day and being processed at night.  Goodbye short transaction times.

This must be "globe of US syndrome"  ;) Did you know that while in US it is daytime there are places on this planet where it is night?

It's quite funny when you think about it, because it means most transactions will be processed by a foreign miner; Each country around the globe is taking turns processing other countries transactions, and not processing much of their own (during daylight hours).


Title: Re: The value spike... c'mon, you all noticed it!
Post by: FatherMcGruder on April 20, 2011, 05:31:28 PM
Do any of the mining profitability calculators take into account the ability to buy new hardware when it comes out?


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Raulo on April 20, 2011, 05:41:31 PM
Once miners like myself grow large enough to be able to buy electricity on half hourly auctions and mining at night and/or not mining at peak hours the hobbyist are going to be driven out of the mining market and I bet it will happen by 2012-2013. Basically my prognosis is that price and difficulty will converge somewhere below price of electricity during the day and price of industrial electricity at night. Also if a miner got DC with PUE way more than 1.1 it will be mining at loss. Enjoy mining while it lasts. But yea... nothing to see here... move along people...

This will never happen. I mean switching mining off during the peak hours. Already for GPUs, the non-electricity costs (most importantly equipment depreciation) are of similar order  to electricity costs. And for "professional" miner even more so who must pay for management, collocation, monitoring and all the stuff you always mention when you justify your sky-high prices, don't you?.  And it will be more pronounced for ASICs which are more energy efficient and capital costs are a more significant fraction of the total costs. The difference between the day and night electricity prices are not large enough to make switching off during higher prices economical. If it is not worth mining during higher electricity prices, it will not be worth at all.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Grinder on April 20, 2011, 05:44:12 PM
Once miners like myself grow large enough to be able to buy electricity on half hourly auctions and mining at night and/or not mining at peak hours the hobbyist are going to be driven out of the mining market and I bet it will happen by 2012-2013.
You'll have to do pretty well on those auctions to drive us out. My electricity costs for mining is less than 1/6 of the price you charge. I think it'll be the other way around - those who use expensive professional services will be driven out by hobbyists who hack together cheap but mostly working solutions. Unlike most web related services, uptime and reliability is of minimal importance for mining.

Hopefully it will stay that way, because it will be a lot easier to attack the network if mining becomes too centralised. On the other hand, when we have to use mining pools to get bitcoins regularly the security is already weakened.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Raulo on April 20, 2011, 06:27:53 PM
And now imagine that miner "able to buy electricity on half hourly auctions" as I said above as a qualification to anything followed. Do you know much about energy marketplace? Do you know that electricity prices for a few peak hours could be easily 10 times of night rates?

Yes, two three times a year there is such a difference. Typically, it's much less. And those peak rates are still of the order of capital depreciation. Your GPU has 24 month lifetime at the very best. After that it is either dead, or obsoleted by more efficient equipment. When it sits idle, it costs money. And let's not forget that the idle energy usage is non-zero.

Quote
Do you know that there are companies in US which aggregate electricity consumption from a set of customers and pay customers to not use electricity for a few (peak) hours a day?

For a laundry that have a load to process and sits idle during the rest of the day, yes but for a compute center? You must be kidding.



Title: Re: The value spike... c'mon, you all noticed it!
Post by: Raulo on April 20, 2011, 07:30:19 PM
First of all, if it still not absolutely clear, my statements were not referring to present, but referring to future when margins are worse and cost of daytime electricity makes GPU mining not viable during daytime. Why are you people trying to argue it using today's numbers is beyond me. My English must be really bad, perhaps it's time to find a book like "Writing for 5 year olds for dummies" or something...  ;D

I perfectly understood you were talking about the future. You don't need to buy this book.

However, let me rephrase it again  that no matter what the future of bitcoin mining is, the fixed cost of mining will be at least comparable and in case of ASICs will dwarf variable costs. And daily variability of electricity costs will be a small noise in the mining profitability equation.

If we are going to be out of biz, it will be by semiconductor companies and not by energy utilities. The silicon cost is the most crucial in mining profitability.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: deadlizard on April 20, 2011, 07:43:28 PM
As far as I'm concerned Mining profits = Solar panels  ;)


Title: Re: The value spike... c'mon, you all noticed it!
Post by: error on April 20, 2011, 09:27:25 PM
And due to the infrequency of difficulty updates, this is entirely possible and would result in all transactions backing up during the day and being processed at night.  Goodbye short transaction times.

This must be "globe of US syndrome"  ;) Did you know that while in US it is daytime there are places on this planet where it is night?



No way.

Palmface

Here in the US, we say Facepalm! :P


Title: Re: The value spike... c'mon, you all noticed it!
Post by: Grinder on April 20, 2011, 10:24:54 PM
I do not see how prices I charge have anything to do with your (or even mine) electricity costs.
I'm just assuming that you would set your prices at a level that was at least competitive with mtgox if you could. Either way, it shows that electricity cost is only a small part of the price people have to pay if they want to use a professional mining service.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: NETio on April 20, 2011, 11:33:19 PM
As far as I'm concerned Mining profits = Solar panels  ;)

Anyone ever actually looked into the time to break even on a solar panel purchase?


Title: Re: The value spike... c'mon, you all noticed it!
Post by: MoonShadow on April 20, 2011, 11:41:29 PM
As far as I'm concerned Mining profits = Solar panels  ;)

Anyone ever actually looked into the time to break even on a solar panel purchase?

Yes, I have.  Considered getting a set put on my roof.  With government subsidies and a purchasing contract from an Ohio power company, ROI was just over 7 years.  Without the subsidies, ROI would have exceeded the average life expectancy of the panels themselves.  Of course, I wasn't considering them for their investment value, but more for their ability to limit my own family's 'detrimental reliance' on the electric grid.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: MoonShadow on April 20, 2011, 11:51:38 PM
Once miners like myself grow large enough to be able to buy electricity on half hourly auctions and mining at night and/or not mining at peak hours the hobbyist are going to be driven out of the mining market and I bet it will happen by 2012-2013.

There are some singular miners that you can't undercut.  I don't really understand why I have to keep pointing this out, but much mining occurs in the tiny efficienty type flats of young gaming geeks.  Who live in tiny flats with only electro-resistive heating, and would buy an high end graphics card anyway, most of whom already had one before learning anything about Bitcoin.  This may not be your situation, but there are certainly people who do live in such a situation, and there is no professional mining setup that can drive these guys out of the mining business.  I'd have thought that the market experiences with GNU/Linux and other open source software would have long proven that for-profit companies cannot compete with geeks who don't expect to make a profit.

And when the heat demand for those guys drops off, then the heat demand for their peers in the Southern Hemisphere will go up.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: topynate on April 20, 2011, 11:56:10 PM
Bringing it back to the original topic: my first thought reading about the online poker indictments last week was that it would bump exchange rates on speculation that both money launderers and more legitimate poker players would at some point move to Bitcoin in volume. For this to fully explain the rise, though, would require insider knowledge of the indictments before they were unsealed.

That said, I'm definitely bullish on Bitcoin in the light of what's happened in the poker world.


Title: Re: The value spike... c'mon, you all noticed it!
Post by: asdf on April 21, 2011, 01:00:13 AM
You need to take into account that the reward for finding a block is going to be divided by two in ~2 years. This will certainly change the trend.

Yes, it has been troubling me, because I don't really have much of a clue about how that would affect the market other than to force it up. But by how much? Twice the rate? I don't know. For the sake of having numbers to look at that's what I have plugged in, but I have a feeling it could be a lot higher.

I expect that in 2 years, yield from transactions fees will be much higher. This should mitigate some of the disruption caused by the reward decrease.

If txfees are on average 0.001BTC and there are 100,000 transactions every block, that's 100BTC just in txfees.

If there are sill no fees being paid in 2 years then I would worry about the viability of the txfee market and that of bitcoin.