oh god my money

Amusing too is Google Trend's search hits for "bitcoin":

In for a grand, let's see what the market brings me.

GUESS I WASN'T OPTIMISTIC ENOUGH, I think we may see it come back down by the afternoon though.

I forsee 6.25$ USD/BTC by the end of the day.

No particular reason for the enthusiasm.

Because of its deflationary nature bitcoin is more akin to a commodity than a currency...  You don't just print bitcoin when you need more bitcoin.  You need to invest in mining equipment and electricity.


Right, but the speculator is over time not likely to be stupid and purchase something for $5 that only cost $2 to produce.  These are common markups for businesses that have transportation fees, employees to pay, locations to maintain and pay taxes on... they don't make sense for something like mining.  The bottom line is: Why would anyone pay for this?

What that chart fails to take into account is the cost per unit of output.  Things changed rapidly at the beginning of the year with the advent of GPU mining.  I guess it's not even so much about difficulty as it is about miner efficiency and the amount of power and hardware it takes to make a single bitcoin.

The economic equilibrium could only ever be at a place where it made some financial sense to everyone involved...  You can't have people making 60% annual profits.  It pretty seldom ever happens anywhere for any kind of goods or services, and never happens continuously for long periods of time.  What we saw was a massive hyping beginning in April/May (when I first heard about it) that resulted in absurd, foolish investments by people who saw the lure of a new deflationary means of currency and felt it was akin to an actual commodity like gold.  This snowballed as the price drove the hash rate up akin to what you see with gold when government currencies are suspected not to maintain their value.

I actually didn't even realize the difficulty could decrease until recently, but I think it could be a very bad thing that it does.

The price was inflated due to worries about the global economy and press about the currency, that is, we are not at economic equilibrium (which is commonplace in a free market; hype can drive prices through the roof).  If you go back to day one of bitcoin, it is pretty clear that both price and difficulty have increased exponentially, and that these increases are related to one another.

This is another good point.  A perfect deflationary block chain currency would ideally also have these features:
- Static or increasing difficulty (difficult never lowers)
- Rapidly dynamic block size changes with difficulty, so that even if the difficulty were high and little was being mined, transactions could go through expediently
- Difficulty starts at at least 1 million, probably more ideally at 2 or 4 million (the initial costs of the currency would be very high to produce and thus probably also sell for larger amounts)
- Supply limitations designed around total coin being mined somewhere at least 100 years away

By paying for stuff?  If you continually print more money and use it you will cause horrific runaway inflation and has been seen a million times over the globe for the past 2,000 or so years.  This is why the interest rate is dropped so low right now, as it should be.  In fact, I think that in an unmanipulated economy the currency supply at the moment would actually be decreasing instead of pretty much zero.

This seems hard for everyone to wrap their heads around.  Okay.  Every month let's say 200 new pounds of gold is mined.  In September, the average cost of mining gold was $10,000 a pound.  However, in October, a new mine is discovered that prompts the old mine to close because it is much easier to mine from.  Now, it costs $2,000 per pound, and 200 new pounds of gold are also mined.  This cheap new gold is announced on the news in the beginning of October.  If it just because five times easier to acquire gold by the company who is mining it and the investor knows this, why should the investor pay the same amount for gold as they had been when mining gold was harder?  Worse yet, what if a competitor finds a similar mine?  Competition would naturally bottom the price out, even if output was the same.  Diminished manufacturing costs cause the same economic behaviour as enhanced production amounts for the same cost to the company as before because they change the cost per unit of output.

This I think is actually an economic flaw of bitcoin; if difficulty never decreased (as happens with actual valuable commodities such as gold and oil) the price would have to stay high because the cost as a function of difficulty would only go up or plateau as time went on.  In real life, the price of a barrel of oil does lower with demand, however, the ease at which oil is obtained still remains at relatively the same difficulty because the supplies on Earth are exhaustible.

The intrinsic value of bitcoin I believe is strongly tied to the difficulty in obtaining it, and if it becomes less difficult, naturally the price would have to go down.  It's similar almost to LCD TVs; even if the demand for LCD televisions is staying at roughly the same levels, competitively the price has been driven down over the past decade because the process by which they are manufactured has become cheaper.  The equivalent scenario in bitcoin is that the cost of manufacturing bitcoin has become cheaper, so people, obtaining more for the same hash rate if they are mining, will be more willing to sell the bitcoin for less in a competitive market.  I think it might be possible for this to lead to the collapse of the bitcoin market.

This is pretty text book economics stuff, but I could have it wrong.  I was right so far about the equilibrium being around $4-6 USD for the current difficulty level and I fear I could be right about this, too (I am a miner and making money, but admittedly the returns for the past 6 months were nothing short of insane for miners).

"But difficulty do not influence price. Price influence difficulty."  This statement is flawed because both variables are functions of each other; that is, difficulty can be modulated by changing prices or price can be pushed in either direction by changing difficulty so long as the difficulty can go back down.  If the cost of production were to stay the same or only go higher, it's much more likely that the prices people are willing to sell their bitcoin for will be higher.  Buyers, knowing the costs of production, will also be more likely to spend more for them since they would not be able to so easily acquire them for themselves by mining.

Right, but if you get more by mining less, bitcoin will still be worth less intrinsically to investors because the costs associated with producing bitcoin will cost less.  This is in the model in which cost going into bitcoin is related to price of bitcoin, which is the only one that makes fundamental sense to me.

In this model, price of bitcoin is a function of the difficulty of bitcoin.  I believe this is reasonable based upon the logarithmic charts people have posted here.

Well, if people stop mining, the difficulty will fall.  If the difficulty falls enough, bitcoin will be cheaper to acquire and thus be worth less than their current estimated $4 of worth.  Additionally, the release of the 7xxx series from AMD will probably speed up hashing.  So, it's possible that if people stop buying bitcoins we could go to less than a dollar, yes.  It seems kind of unlikely right now, though.

No, it's going down to what it's probably worth in the mind of speculators.

https://bitcointalk.org/index.php?topic=34978

It's probably going down to about 5 soon.

I lost about $14, or 0.05% of total investments

Unrealistic ROI for miners

Basically at the current price miners are making a ton of cash, we will see some really crazy volumes (and investment) when the price hits 3-5$ USD.  No one at the moment wants to be giving their money to miners who are making 80% ROI, though, why pay $2 for a bunch of bananas that you by all calculations are only worth $1?  Investors aren't dumb and can tell when they are being ripped off.

BTC going down to 3-5$ USD/BTC will be the best thing to ever happen to bitcoin, I think

The bot involvement is what makes bitcoin part of the currency of the future, as pretty much anyone can make a bot to compete with someone else's bot.  You can easily lose your money too with HFT, as has been shown in the 2008 crash.

If bitcoin lasts more than a couple years, we'll see interesting things: Artificial intelligence algorithms applied to the market...

As long as you can recognize someone else's pattern, you can program something yourself to take full advantage of it (and knock off the other player).

Aside from that: If you don't like HFT or retarded fake walls, start your own exchange and limit transactions to one every five minutes and hide all the bids/asks

8/28/11: Battle of the high frequency trading software.

Here is what I think:
- Sell walls are fake at Mtgox.
- New high of 9.40-9.75 by the end of the day.

I have 400 i0coins you can buy for $0.01 BTC each