You cannot mine with promises.

If today I decided to purchase some hashing power, I could have AM blades running in less than a week. The chances of getting BFL power before Christmas if ordered today is a toss-up.

Order from AM and get a 6 month jump on hashing, or buy from BFL and get something that will require multiplying infinities for ROI. Seems like a no-brainer, so unless you ordered from BFL a year ago you might as well forget them as the are irrelevant to current purchasers.

Or you could just buy AM shares and get paid weekly  

Disclaimer: I ordered 2x25Gh from BFL in April and am doubt I will see them before October.

It has been suggested by many that there is a strong correlation between global hash and btc / fiat exchange rates. Now we will see if the tail wags the dog.

With the downturn in the btc /fiat exchange rate, one would reasonably expect the global hash to collapse as well since mining suddenly becomes unprofitable for many. Do any of the Oracles of Delphi want to peer into their crystal balls and predict if it will come to pass?

Personally, without a collapse of global hash I would suggest that btc as a system is still healthy. Should the global hash collapse, it could certainly be seen as a sign of the apocalypse.

The issue is a simple one: Bitcoins exchanges currently do not have sufficient market depth to handle the sizes of trades being processed. A simple example should suffice. Suppose i purchased 10000 shares of ASICminer at 0.01 nine months ago. I hold them today valued at 4.5 each. I decide to take some profit off of the table, so I sell 1000 shares. I cash out through Gox for fiat to the tune of nearly a half a million USD. I do this because I was a poor college student when I bought those ASICminer shares, and now I want to pay off my student loan, buy my girl an engagement ring, and then buy a jaguar XK8 convertible. I still have 9000 shares of ASICminer as an investment. But pulling .5 million USD out of Gox is very disruptive to the price of BTC. The market breath just is not there yet. It is overwhelming, and BTC plummets. This is not manipulation, just a case where someone decides they want to cash out.

If one could pay off the student loan, and buy the ring and the Jaguar with BTC, it would not be so disruptive to prices in fiat. Currently, BTC is still trapped by the majority of the world accepting only fiat, and so long as this is the case large cash-outs will continue to occur. As BTC increases adoption as a payment method (assuming it does) and fewer conversions to fiat are required for purchases, the effects described above will be eliminated.

What we are witnessing are simply growing pains, and not endemic of system flaw or a lack of investor confidence.

Accepted.

Lending in a deflationary currency has fundamentals that tend to strain common sense. One could technically lend at a zero percent interest and still make a tidy profit, since every unit of currency paid back in the future would have a greater value than those originally borrowed. In fact, if it is deflating rapidly enough, profit could still be realized lending at negative interest rates.

Comparing the returns of investing in AM with the returns of loansharking may lead one to assume the better value will be returned by loansharking. While this is possible, all investments follow the same basic risk/ reward paradigm we are all familiar with. If you believe the risk /reward is better for AM than loansharking, then Buy AM. Otherwise, you can certainly lend to your heart's desire. But these are personal investment decisions, and it is of course possible to lose in either case. The risk premiums should reflect the risk. If you believe them to be skewed, you will find a good place to invest.

The potential for AM to grow nearly indefinitely should be obvious, as it is for most industries. Even if every computer on Earth was running Windows 95, and Microsoft had 100% market penetration and adoption, they can still roll out Windows 98 and do it all again. Likewise, while AM mining has practical caps, their hardware does not. The caps on hardware are only temporary, and increases in global hash are simply opportunities to sell the next generation of eruptors. And the next... and the next... each generation contributing to a higher hash, enabling... another generation of eruptors.

As I said in a previous post, they welcome the competitors. They have no desire to become Standard Oil, it would not be in their self-interest. Constantly predicting that other companies will spell the demise of AM only plays in their hands. The competitors are necessary for AM to continue with it's business model, and they would quickly become stagnant without them.

Currency has much in common with the schrodinger cat. It is is a state of being neither alive nor dead until you open the box.

Currency is an abstraction of value, not value itself. It only achieves value once spent.

This is why deflation is not a boggyman to be feared. Suppose I were to spend BTC to buy a home. I live in the home for 5 years, and keep up on it so that is in the same condition 5 years later. I sell it for BTC, and receive a smaller number of BTC. One could argue that I have lost, but that is simply an illusion. I have simply traded the opportunity cost of holding the BTC for a home for 5 years. I took one house worth of BTC, traded it for a house, 5 years later I traded one house for one house worth of BTC. I broke even. The deflating currency has harmed me not a bit.

Now granted, when purchasing things which are consumed the story is different. You must measure the opportunity cost of consuming something today against saving and consuming later. You will determine whether that is a fair trade off as an individual when you choose to consume or to save. At least it is you who are making the choice and not having it made for you by people who change the rules when it suits them.

Resources are deflationary by nature. The first barrels of oil from a well are the cheapest and easiest to get, just like bitcoins. Every day that passes, it costs more to obtain more. Holding a barrel of oil from the beginning instead of consuming it brings forth a profit. I would posit that deflationary currencies are more in tune with the nature of the world than the inflationary ones.

Although for accounting purposes, we like to look at a chart and or ticker and say that asset X is worth Y. Unfortunately, it is far more complicated than that. The first thing to understand is the difference between gambling and investing. In gambling, your odds of success are either certain or guessed, and then an event happens. Once the event occurs, the results are tallied and you move on to the next event. Investing is different in that you as an individual decide when the event has ended. What that means in a nutshell is that until you sell an asset, the profit or loss has not been determined. You may hold an asset for months or years, with the spot value rising dramatically and crashing spectacularly a dozen times, but all that matters is the value the day you sell. This has a direct affect on the hoarding of BTC.

Currency is not worth anything at all until the day that you exchange it for goods and services.

There are those who will argue that it can be used as an investment vehicle, and that it has potential value if it rises or falls against other currencies. This is true, however, the end of the investing event is still the day you spend (convert) it. The value of currency is never inherent, it only expresses it's value when it is accepted for goods and services. Marx knew this quite well, it seems many seemed to have forgotten this.

Consumers do not want dollars, they do not want gold, they do not want BTC. They want what they can exchange currency for on the day of THEIR CHOOSING. A boat, some cheese, some petrol for their car. No one wants to die and be burred with their BTC. The currency is a means to an end, not an end in itself. BTC, like any other currency, is designed to be spent. The larger the ecosystem grows, the more it will be spent.

"Hoarding" is often used as a derogatory term for saving. Saving is certainly a good thing, we were all taught the fable of the ant and the grasshopper. BTC rewards savers (and investors) by being deflationary. However, it also rewards spenders. The burden of legions of banking employees, and massive buildings, and electronic substructures no longer need by subsidized by the consumer nor the producer. There is no need for ATM fees, maintenance fees, yearly fees, all of the incredible number of fees stripping billions and billion from producers and consumers and redistributing it to stockholders and subsidizing millions of jobs that can be replaced by little boxes mining away quietly in the night spread all over the world.

The currency may well be deflationary, but by replacing current systems it provides the efficiency to incentivize and reward every user everywhere, saver or spender alike.

The suggestion that AM is in a bubble begs us to define exactly what a bubble actually is. I prefer this definition:

"A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs."

We know there was (and still is) a surge in prices. This is a matter of record and irrefutable. But this alone does not make a bubble.

The first question an investor must ask is whether or not the surge is warranted by fundamentals. This aspect has been hotly debated since before we at 2.0, and I expect can only be answered for any given timeframe or value in retrospect. Some people believe 5.0 is not warranted. Heck, if you scratch around enough you can still find people who think 2.0 is unwarranted. One thing is certain: there is nowhere near enough information about AM financial structure to even begin to do a proper analysis. The truth is that we really don't know the fundamentals, so we do not know if it warranted... period.

There has not been a drastic drop in prices. This is also a matter of record.

I would suggest that the recent volume of sales could well be considered massive. The volume of shares at auctions for direct shares has increased substantially recently, however, they did nothing but temporarily stabilize the prices. Likewise, volumes on the exchanges have accelerated as well, but once again, there are still plenty of buyers driving the prices even higher.

If we did not see the increased volumes of sales I might suspect a bubble forming as the trade was being pushed up because of a thinning of the market. But the number of liquid shares appears to be increasing without driving the price down. This is not a sign of a bubble, but rather, of an undervalued asset.

Better than if you had done it a month ago.

ASICMiner- Letting the cat out of the bag.

Recent analysis has led me to some interesting conclusions. I would like to present them to the community for discussion. Feel free to shoot holes in it as you desire.

In the early 1990's, Microsoft made a huge investment in their direct competitor, Apple. Apple was failing, and common wisdom dictated that this was done to keep from getting impaled by anti-trust lawsuits. I would suggest that it was nothing of the sort. I believe they were just doing it to grow the market, so that the value of their share would increase. Witness AM. AM has demonstrated a capability to completely dominate the entire global hash if they so desired. I don't think this is conjecture, but rather a demonstrable fact. But unlike Microsoft, they had to deal with a very important restraint: they could not ever under and circumstances breach 50% of market share. This placed a practical limit on their growth. They could never grow to more than 50% of the current hash. So what is the obvious solution? Increase the hash that they do not control, and the easiest way to do that is to supply their competitor (Joe and Jane miner) with devices that could hash. AM, in order to grow, increased the hash of their competition by selling them hardware that they could have easily put into their own farm. AM effectively put themselves into the catbird seat by not only profiting from their own farm, but from hardware sales as well. The tertiary profit came from increased hashrate allowing them to expand even further. They raised the value of the cap.

I have no doubt that many have realized this strategy already, in fact, there have been several posts that have alluded it to it. What I think most have missed however is much more complicated.

As specialized hardware is required to make any sort of profit, the actual number of miners has been decreasing. The costs of obtaining the latest hardware continue to increase leading to only one conclusion: That eventually no individual will be able to own hardware capable of hashing a profit. We will eventually reach a point where there exist only a handful of companies with the resources to purchase and operate the hardware required... and instead of owning hardware, we will all own shares in farms. Just as the wildcat oil-drillers gave way to Standard Oil. But Friedcat has a trick up his sleeve, there will be no Standard Oil. Friedcat appears to have embarked on a strategy that pays attention to history. He knows the result of a monopoly, and knows it is poison to bitcoins. He welcomes the competition. he encourages it, and above all else, he profits from it. He knows he needs it. So he ensures it exists.

Where will this lead? The obvious conclusion is a system wherein Friedcat runs the bitcoin mining ecosystem in the same manner the federal Reserve manages dollars. A total domination on almost every level. Avalon kicking up the hash? Excellent, we can just increase to match, and sell even more block erupters to everyone who is trying to keep up. More profit for shareholders. BFL actually delivering? Pop the cork, we can now bring another 10 Terrahash online and sell even more USB miners! More profit for shareholders!

And so, we end up with AM ensuring no entity ever gets 51%, protecting the bitcoin system, and rewarding shareholders with an almost endless stream of dividends. It almost looks like it is all tied up with a pretty bow. When you read it like this, it is hard to wonder if Friedcat and Satoshi might be in some way... related.

Oh, well, off to bed. It was a good bedtime story if nothing else. Please deposit the tinfoil hats in the bin as you leave.

I agree with all you have said except for one point: that they are locked in battle for market share. In my previous post I outlined why AM will always dominate and control the market share of their competitors.

It will not really be a free market. It will be dominated and manipulated by Friedcat. In fact, it already is.

To elaborate, AM is following the same path Microsoft followed in the 1990's. They can easily dominate the entire system. But Microsoft actually pumped billion of dollars into Apple. AM sells massive hash to individuals, which are actually their competition. It sounds counter-intuitive, but it is actually genius.

AM welcomes that competition. They have a 50% barrier they cannot ever violate under any circumstances. This puts a ceiling on their growth. But by supplying hash to the world, they profit not only from their own hash, but also from the hash they sell to every other company. This affords them the capital to maintain an advantage, and to completely control the the entire ecosystem. This is the very definition of  the "cat-bird seat".

Attempting to hedge difficulty rates equates to nothing different than fed watching for bonds, except in our case we are AM watching. Unfortunately, there is nothing opaque or arcane about the reports from Friedcat. The only thing you will be doing is stripping btc from the uniformed and handing it to the informed, and extracting a fee for the service. Hardly an honorable way of making btc.

As I said, AM will welcome the rise of others such as Avalon or KNC, but they will never be threats. They are useful to AM only as a means on ensuring that the market cap of 50% increases and increases, ensuring almost infinite growth.

Of course, I may be completely wrong.

What you say is very true. It is useful to consider that within each "quantum state" that the difficulty increases will follow a familiar and predictable pattern based off of adoption. As more and more people adopt the new technology, the difficulty will be characterized as a quick increase followed by a long-tail taper, basically a plateau that grows more slowly with time.

The only other real influencing factor is organic growth, which can be characterized as larger populations of users. This concept may be made obsolete by the last jump to ASIC, wherein specialized equipment is now required to expect any return. I do not see much future growth in the number of miners, in fact, I would suggest the number of miners to diminish as hardware requirements increase. I would expect a long term trend of consolidation, where only a small number of mining companies are responsible for nearly all of the hash, ending the era of private ownership of mining equipment forever.

For this reason, any attempt to hedge is destined for eventual extinction, as your only customer base will be the few surviving mining companies who have little or no need of your services.

One thing to consider is that the rate of difficulty increases will never be linear. They have over the history of bitcoins followed a pattern more akin to quantum states because of technological advancements. That is to say, the rate of increase (integral) for cpu mining was somewhat stable as more nodes came on line, but jumped to a new quantum state when GPU began. This was followed by FPGA (for a short time) and then GEN1 ASIC. We are still at the GEN1 quantum state, which will be followed by Gen2, Gen3, and then probably settle forever in Gen4.

I would be highly adverse to making specific predictions on difficulty growth rates based upon future technology. When I say future technology, I do not mean cutting edge or undiscovered technology, but rather well understood technology delivered to consumers that is currently unavailable to miners. AMD or Intel could decide tomorrow to produce ASIC chips that obliterate all other mining rigs available, although they have to date shown no interest in doing so. It will take years for ASIC mining chips to reach the standard of technology that is already available in other applications for consumers. However, developers of ASIC chips do not have anywhere the resources of an AMD or Intel at this time. But perhaps in a year or two they may.

Over a third of the shares sold in less than 30 minutes. You call that a wall?

over 1/3 shares, 342 gone in less than 30 minutes. I would have thought that wall would have held a little longer.

I would posit that most of the smaller investors in AM (Those with less than 50 shares) are reinvesting divs right back into more shares, either directly or through fractional share purchases.
This would have the effect of funneling btc directly into the hands of those wishing to cash out, which is the primary reason for selling. This lends itself to the following hypothesis:

Purchases of AM tend to go to sellers who convert the btc to cash, driving down btc exchange rate and simultaneously increasing AM share prices as reinvestment means less shares available for sale.

The results are exactly what we are seeing, and the market for both btc and AM may just be thin enough at this point where the hypothesis is correct as a causation factor of current trends. There would be of course, other factors at play, but i would consider that this one may be the primary one.

It just begs the question: What would direct shares at auction bring?

"A week in bitcoins is like a year on Wall Street."