Cost to produce has some bearing on bitcoin exchange rate.   When it's trading at $32 and cost to produce is sub-$1 people go long through mining operations.  Not much new meat will direct buy.  When it's trading significantly below power cost some % of miners may sell rigs to buy directly.  New meat will direct buy.

Of course it's speculation.  There's just more than one way to play.

There is no revenue associated with the bitcoin ecosystem (yet).  We're running at a burn rate of $1000/hour or so to maintain the network, but income is $0.  All current and previous $ valuation came from people speculating expecting a higher future exchange rate.

Since our market cap comes completely through speculation your answer is "yes."  Speculation caused the demand, and at some point the supply.  And when the two met -- the pricing action.

Based on namecoin observations.   Many people are happy to mine for *MONTHS* at a 40-50% loss because they believe in upside potential.  They can't make the mental connection between being long and producing being two completely unrelated activities, in their mind mining is not at a loss until they sell.

While it's far more economical to simply spend the $ on buying BTC instead that's effort.  Bank -> dwolla -> mtgox requires getting off your duff.  Mining BTC to buy Namecoin is far less effort, yet people didn't bother even for 40-50% more namecoins a day.  In fact, the last few weeks mining namecoins was below power price even for the 4.6 cents/kwhr people like me.

So I yes, I think we could see well below production price as the market price.  And we'll be able to sustain it for months.

$1.25 is the bottom as long as difficulty is over 1.5 mil.   If difficulty nosedives a la namecoin there is no bottom.

My estimate is $1.25 is as low as it can go at current difficulty.   Of course, if difficulty drops to 200k and we're looking at hour long confirms for 2 months we'll be thinking of $2 as the "new $20."

That's exactly why I keep swatting down the permabulls.  I want to get through the denial phase and into capitulation already so we can build a base and get into rally mode.   With a 5 to 1 margin requirement to short on a brand new exchange there's no practical way of taking advantage of a bear market, I want a raging bull one again!

Last month I'd have said $4s would be that point.  But with 90% of the community still bullish on bitcoin (estimated from deepbit hashing power) there's no "all is lost" feeling at all, and we're still in the "I'll hold forever if I have to, I'm in this for the long term" part of the denial phase.

TL;DR -- I'll get my cheap bitcoins if I still want them, but I really wish for that point to be sooner rather than much, much later.

Oh I may, I may.  But not video cards -- I'm waiting for the FPGA miner guys to get a clue and slap at least 6 of the $158 spartan 6s on their board instead of just 1 or 2.   At that point the FPGA setup won't be much more than a mining rig, and once again have a 90% gross margin on cost to produce each coin.

We're one genius move on the part of hardware devs and a few dollars to the downside short a giant shift in the way bitcoins are valued.

And the amount actually sold matters less than you think.  I can estimate that at a minimum 200k coins made their way to MtGox since the last hack until the hacks which caused the spike to 7.7 Sunday.   That was enough to bring us from $17.5 to $4.5.

What is more relevant is the total number of coins has increased, and continues increasing at a fairly steady rate.  Unless there's something to cause the total market cap of the bitcoin ecosystem to increase those 210,000 coins are monthly pressure to the downside. 

People are $35,000 richer today than yesterday, even if it's on paper.  Unless more money gets deposited to keep the pyramid propped up that value came from existing buy-and-holders.

I don't have hard numbers.   I do know we had 500k coins in MtGox's account when it was last hacked.  I do know 75% of mining power is new, and those people (like me) got in for dollars.  A million coins have been mined since the $32 high, and even .2% of that amount is enough to move the price 10% today.

However, fiat money can be exchanged for bitcoins.  If I time my market movements correctly I'll have MORE bitcoins rather than fewer. 

Your posting is justification for being net long bitcoins.  Mine is about trading.  The two are not related.

If I take the money I've already made selling bitcoins as I've mined them and buy on the market right now I'll wind up with about 3x as many.  Or, to put it another way, 3.6 gigahash for the price of a bit less than 1.2 (sold half my cards a few weeks ago).  Right now it looks like if I go with my current strategy I may wind up with 4x, 10x or maybe even 1000x as many. 

But keep on hoarding, that just means my bitcoins won't be splitting the remaining cash pie with as many others.

Not appropos.  If you look at deepbit, the hashing power we have now is maybe 10% off of all time highs.  This is enough of a sample for me to project that 90% of the bitcoin community are still strongly bullish on bitcoin.   That doesn't match "fear" or any synonyms thereof.

More likely we just haven't had any fresh meat cough up millions a month to pay us miners lately.

I can't wait till bincoinica causes margin calls as a result of bogus mtgox trades or data.  You know it's just a matter of time.  They dodged the bullet this time, but next time margin traders may not be so lucky.

Great work as always.   

Lower BTC prices are making it easier for you, our absolute % moves are getting huge relative to the past few months.  Volatility is really picking up and the 25/75% ranges are as wide as the West.  I may have to cough up that "penny bot" after all.

Oh absolutely!   "Fundamentals trump technicals" and "there are no billionaire chartists" are as true as "never catch a falling knife", "the trend is your friend" and my favorite, "bulls make money, bears make money, but hogs never make money."

Trading driven exclusively by chart reading is precisely like driving by looking only in the rear view mirror.  You can do it just fine so long as nothing jumps out in front of you.  Look to the side every so often and you just might notice the moose headed your way.

Oh they are, they are.   You can find a quote from at least one forum member here about not selling at these levels.  Note he didn't say he stopped mining, he just said he stopped selling.

I was one of these guys, you can even find my postings at the time bitcoin was about $9-10 re: being in for double or nothing.   But as I mined more and more coins over the month I realized odds are I could get them for cheaper later and just sold.  I was right to the tune of about $5/btc.

I've also re-started mining.  Figure my 5830s are worth dick/all for gaming, might as well wring even $25/month out of them after power costs.  Happy I managed to sell 2 out of 4 before bitcoin collapsed.  Seeing as hash rates on deepbit climbing it looks like I'm not a unique and special snowflake with my conclusions.

Actually, there are very sound economic reasons for chart patterns being valid.  I read a book a long time ago that went into just that.  Fascinating stuff.

For example, let's say someone has a long position.  A stock hits a high, then drops down.  "Man, I should have sold.  If it ever gets that high, I'll definitely sell!"  Multiply by millions and you have a resistance level.

Now, let's say a popular stock has a dip.  "Man, I should have bought.  If it ever gets that low again, I'll definitely buy!"  Multiply by millions and there's your support.

Charting is just a way to identify lifecycles of trends and trader (but more importantly, investor) mindset.   Used properly it can let you be in a position when it is likely the position will continue yielding profits and out when it is less likely.  It's a timing tool.

That said, TA is mostly trailing indicators.  There are very few predictive tools in the box, and the don't signal every time.  When they do, it's highly likely you've got a good read on the market.

Oh, and one more thing.  I never denied that bitcoin value is 100% derived from speculation.  With absolutely zero revenue and a $1000/hour cost to run the thing by definition it can't be anything else.  The question is: what kind off factors are influencing the mindset of said speculators at the moment?  IMO the requirement for a large influx of cash from new greater fools is currently one of the biggest.  Possible instability and flakiness of mtgox is good runner up.

As far as trading volume -- consider how much volume is generated by tradebots on mtgox.

7200 coins a day is $1,000,000 dollars worth of bitcoins a month available to be sold at $5.  If you don't understand how requiring TWELVE MILLION DOLLARS a year to keep bitcoin at $5 influences prices, well, I can see why you've had 100% failure to predict major bitcoin pricing trends so far, and I have had far more success.


And yet, as bitcoin mining became insanely profitable 75% of the current mining power joined and started selling as opposed to hoarding.  Another way to look at it: before May, less than 20% of mined bitcoins were sold.  After May, that percentage spiked WAY higher as people who got into this for dollars, not bitcoins, tried to pay for their investment -- people who currently make up vastly more of the network than the early guys.


Ever hear of velocity of money?  It doesn't matter that the same coin may have been traded multiple times that month, the fact remains.  Every month several million dollars worth of bitcoins were added to the supply.  Unless there was a corresponding increase in demand (and there hasn't) predictable things happened to pricing.


I've been selling even at current prices and can now buy back lower.  Just like I've been doing ever since June.  We can agree to disagree -- you can speculate expecting higher prices in spite of technicals and fundamentals indicating the exact opposite is more likely, I'll continue speculating expecting lower prices.  Let's see who comes out ahead "long term."  Just because I have no long position now doesn't mean I can't switch to a bullish strategy when it's clear we're on an uptrend, and having MORE dollars to do that with rather than fewer seems like a good thing.

May I suggest an alternate outcome?

Miners keep mining at the current rate.  They keep selling at a current rate.  Prices keep dropping at current rate until difficulty starts to drop, and we get the exact inverse of the spiral up.

Deepbit supports this as a possibility, current hash rate is 5000 gigahash -- less than 10% off all time highs.  80% of the hashing power has been added since June, so most of the current bitcoin miners are "late adopters."  Late adopters have little vested interest in hoarding bitcoins and making early adopters rich, so a good portion of them sell what they mine.   MtGox had 500,000 coins back during the first hack, 700k coins were moved around the latest fear of hacks.  It's reasonable to believe another 200k coins have made their way to the market in the last 6 weeks.

200/500 = 40% more float.  Definitely more supply.

Now, on the demand side we've seen silkroad becoming much more low key, google trends shrinking, media attention waning and a general decrease in the number of potential new suckers.  At the same time we've got prices on a steady, recognizable and undeniable downtrend.

At the moment it'd take ONE MILLION NEW DOLLARS a month to keep prices at $5 if nothing else happened and miners sold what they made to pay for hardware and power.  I'll let that sink in a bit.  ONE MILLION NEW DOLLARS.  Luckily, many miners are content to be bagholders for now, and it takes far less than that to keep prices stable.  However, those coins are mined, available, and still a bit of a liability.

TL;DR -- keep waiting.  Oh, and if you can, please deposit more money.  I'd like to get more than five bucks a coin for mine.

Calling a bottom again?  I'm down with that.  Please deposit more money and catch this falling knife again, I've mined another coin to replace the one I sold at $6. =)

Deepbit is not losing much hashing power at all, which means almost everyone still mining has power as cheap if not cheaper than my 4.6 cents/kwhr (or about a buck eighty in pure power to make a BTC).  We'll mine another 210,000+ coins to sell over September, never fear!  $1.80 to $5 is still profitable.  $1.80 to $4 is still profitable.   $1.80 to $2 is still profitable.  And heck, looking at namecoin, I'd say people will still mine at $1.80 to sell at $1.25.

After that, well, depends on whether difficulty drops or not.

You'll have the weekly high occuring most often on Tuesday and Wed. in the morning mountain time.   Secondary peaks occur in the evening on Sunday.

That's one cycle.  There are other cycles which overlay this, and either magnify or dampen the movements.

TL;DR - they do, except when they don't.