On Saturday I posted a prediction that we'd see a Dead Cat Bounce up to $20 before falling below $10.  Well, its gone a bit over $20 since the crash and showing a downward trend again.  The MtGox market is pretty thin when the USA is asleep.  Whoever pumped and dumped the market last week is well aware of this.

The often repeated reason for Bitcoin's continued appreciation is the increasing difficulty in creating new Bitcoins.  This argument doesn't make much sense when you look at who is trading.  Most traders are not miners, therefore they don't care how much it costs to mine or how expensive a 6990 is.  There are already enough BTCs floating around to keep traders happy.

I admire your enthusiasm, but even you must have been quite scared to see BTC's value drop from $31 to $10 within 2 days.  If the price dropped to pennies I doubt you would still support BTCs.

I am a miner looking to get back my hardware investment as soon as possible, and I can't tolerate massive swings in price.  BTCs could be at $10 tomorrow once again.  I sell my BTCs as soon as I produce them to avoid risking holding the bag should the whole deal fall over.  This means I miss out on the potential gains from the difficulty rate going up.  You're the person who could make a lot of money on my mining by going long.  I wish you well and hope it's profitable if indeed you have converted all your money to BTCs.

I've been on slush's pool since starting mining but I think I'll move elsewhere.  Its been down for most of today and actively costing money by losing mining time.  Every now and then my miners can connect, so I assume it's a DDoS.

If you were building a dedicated miner:

Drop the 8Gb of ram.  A single stick of 2Gb will do.

Get the cheapest CPU you can.  Sempron 140 or 145.

Use the cheapest HDD you can find.  Drop the SSD.  You can also use Linux on a flash drive.

I use an Asrock 870 Extreme3 for a dedicated miner.  Cheapest mobo I could find with 2x PCIE 16 slots.

You'd want the fewest components possible in your PC while mining.  Anything not supporting the graphics card directly is wasting power.

With your plans, I'd say you can maybe offset 25% of the PC's price before the cost of electricity makes mining unprofitable.

I spent $1200 on mining hardware this week and already regret it.  Of course, I knew the difficulty rating would go up, and I was very concerned about the rapid run up in price to $30.  But I had hoped the hash rate would stabilise or even fall when the market crashed.  No dice.  It's still rising.  This means people will mine no matter what.  Down to the last dollar per day profitability.  Makes sense I guess, but it's very wasteful of a very valuable resource (electricity).

I'm already think of retiring one older PC with a 5750 and am tempted to dump my 6950s onto eBay as soon as possible.  The longer I wait, the less they're worth.

Current BTC price is $16.50, but I well know it could be $10 tomorrow.  No online retailer is ever going to support a currency with such wild fluctuations.

I think the OP has just seen BTCs fall from $30 to $10 within days, and now recover somewhat to $16.  Do you want to base an investment decision worth tends of thousands of dollars on such speculation?  I feel guilty having just spent $1200 on a couple of mining PCs, and now seeing they'll never pay for themselves unless I mine when the price is $16 and sell if it gets to $30 again.  Will that happen again?  Who knows?  Just because BTCs are difficult to get and rare, doesn't make them valuable.  I have a one-of-a-kind widget here.  None like it in the world.  It should be worth millions, right?

If we all can see the price falls on weekends and rises on weekdays, why aren't we all making money by riding the trend?  I don't really know what makes weekends so special.  Is it because people are away from their computers and not monitoring the market?  Mobile phones and wireless internet make it easy. 

The next difficulty increase is going to be enormous.  Maybe people getting back into the market are paying attention to that and the easy money it should yield.  Big emphasis on "should".

I strongly feel we are now in the dead cat bounce phase of the bitcoin/USD$ price.  Look it up on Wikipedia.  Anything that falls as far as BTC has in the last 4 days is bound to have a semi revival, before falling even lower.  I still bet BTC will be below $10 by the end of this week.  The problem is difficulty is now set to reset so high that many miners (including myself) will drop out on Wednesday.  That will severely weaken the network.  I doubt anyone's too interested in mining for $5 a day after power/computing costs.

Why does everyone assume the falling price is due to manipulation, or that someone will now jump in and buy up massive quantities of BTC?  What if the falling price reflects economics: you can't do anything with BTC (apart from a few very minor retailers, and web hosting companies, yawn).  If I was running a retail shop there's no way I'd ever take BTC.  I don't fancy getting $100 of value today for a sale and have it plummet to $40 within 4 days.

BTC's value is going to show a classic Dead Cat Bounce in the next few days.  It will climb to $20, maybe even a bit above that.  When it does, everyone who bought in at the current price of $13 is going to sell for a quick buck.  Everyone who already has BTC will dump them because 'it's high enough to be good enough' to recover costs.  BTC's price will then fall well below $10 by the end of the week.

Beware the Dead Cat Bounce.

This morning Australians will wake up to this article in a major newspaper:

http://www.smh.com.au/technology/technology-news/drugs-bought-with-virtual-cash-20110611-1fy0a.html

"Drugs bought with virtual cash". 

"To make a purchase, buyers use bitcoins, an unstable virtual currency championed by hackers and other cyberpunks and available through several online exchanges."

The public has only one image of *punks and hackers, and it's not a good one.

"Critics argue that the currency could make it easier for criminals to buy all manner of illegal products, including weapons and child pornography."

That's all we need, for the currency to be associated with narcotics and child porn. 

The original poster smacks of desperation.  First post and has bought BTC at $29.

There are two things happening here: those with an interest to see BTCs head higher are going to do everything to talk up the 'currency'.  Those with a sense of schandenfreude are posting with glee about all the 'idiots' who bought into the whole BTC concept.

I posted a while ago that I was concerned about the rapid run up in value.  *Nothing* justifies it.  Not exponential difficulty curves, not wishful thinking about rarity.  BTCs are down almost 50% yet the hash rate has actually gone up and the next difficulty reset estimate is climbing by the hour.  If rarity justified the price of BTCs, we would see the price shoot back up in the next week or the hash rate fall.

It's a little silly comparing gold with bitcoins.  2000 years ago gold was highly valuable.  It is highly valuable today, and will probably remain so in another 2000 years.  It works without electricity, computers, and is universally understood by pretty much every culture.  It has stood the test of time. 

I went out on Saturday night with BTC valued at 21.  Coming home, it's down to 17.5, and it was 31 a few days ago.  That's one heck of a correction.

1000 in the last 18 hours?  There are 19250 members at time of writing.  The number of users increased by 5%?  Extraordinary.

Another question is how merchants are supposed to offer goods and services denominated in BTC when the exchange rate to USD$ swings so wildly.  A few days ago someone was offering a 1989 BMW for 100BTC on this forum.  They would have got US$3000 back then, but only US$2100 today.  Do we expect merchants to adjust their prices daily?  What if the exchange rate swings so widely that the product's price is lower than its cost to the merchant?  That may happen over a period of months with a government backed currency (extreme examples omitted), but in only a matter of hours with BTC.

Some very good points.  I'm late to the BTC party and would like my mining rigs to pay for themselves.  But that's the problem: I just want to recover my costs and make money.  How many people are just like me?  I wager it's the majority.  Many people will hear that "bitcoins are a currency you create on your own home computer!" and instantly think it's A) a scam, B) a pyramid scheme.  I've tried to explain Bitcoin to a few people so far and ALL initially think it's a pyramid scam.  Even after they say 'yeah, I get it', the look in their eyes is of someone being confronted with a religious zealot espousing their extraordinary beliefs.

As for the currency being treated like a commodity instead of an actual currency, I suggest all currencies behave in that way.  I recall reading that less than 1% of foreign currency transactions are used to buy something real: the rest are from speculators betting on tiny movements in currency.  But at least with USD$ you can go buy something in a store.  We need a whole lot more major web sites to support BTC or I fear this will collapse.

Looking at http://bitcoincharts.com/markets/, the estimated next difficulty level is going up, not down.  It was 720,000 a couple of days ago when BTCs were worth almost $30.  Now it's 791,000 with BTC at $22.  The value of each BTC is likely to follow the difficulty curve, but there is absolutely no certainty that this has to be the case.  Just because it has in the past, doesn't mean it will do so in the future.  Everyone is aware of this fact, and should logically be hoarding BTC until they're worth many hundreds of dollars each (possibly thousands).

Is that likely to ever happen?  I wager it will not.  There are far too many existing BTC users who purchased their BTCs at less than a dollar each, or generated dozens per day last year.  These users will sell up.  How many investments yield 100x returns within a few months and are not a scam?

I'm getting a 1.5kw solar system in a few weeks, but even that will generate maybe 3kwh per day in the middle of winter.

Vast arrays of solar power would make sense in Australia, but it's still much cheaper to dig up coal and burn it.  Nuclear power is out of the equation and will never happen, despite Australia being one of the world's top uranium exporters.

Power here is expensive and growing at more than 10%/year, and that's before a carbon emissions tax (if that ever happens).  Australia is an expensive place to live.  Our housing costs triple that of the US market (post bubble) and I buy pretty much everything I can online from the USA and England to avoid the local retailer and distributor price gouging.  Books are half price off Amazon.com, inc air mail, etc.

It costs me around US$3 in power per BTC as one of my computers is less efficient.  I could cut that back to US$2.10 per BTC, but also slow down my hashing rate.  10c/kwh is very cheap power.  I have to pay the equivalent of 27c/kwh in Australia.

Current bitcoin value is down almost 30% in two days, yet the next estimated difficulty level is still high at 781,000.  I put forward two ideas:

The difficulty level will continue to rise even if the price falls much further.  Those who have already invested in mining rigs are not about to switch them off.  They may even overclock more to try and recover their costs as soon as possible should BTC fall much further.  There is the cost of electricity in all this too, much it's still much lower than the price of a BTC.  But it will curtail further investment in mining rigs.  Who is going to spend $1k on a 3x 6970 rig when it can earn maybe 2 BTCs in a day (at future difficulty level)?

The other thing is we need is people to be pumping USD$ into the marketplace.  The value of BTCs cannot sustain itself based on existing BTC miners trading with each other, as the majority are no doubt interested in selling and making money rather than high ideals about a P2P currency.