2015.04.01 - Market Cap == $1B
2014.04.01 - 1 BTC == 1g Au

I'm bearish and unconvinced that we WILL see $1B.  However, if Bitcoin hangs on through this year and we start seeing serious commerce, it could easily grow that far in a few years.

Edit: added gold.

I agree with all of that.  

A point that bears repeating is that these formulas aren't for predicting bottoms.  All the variables are too fuzzy to pick an exact number.  Further, the floor is very soft and acts over a long time period, so the price will never bounce off of it.

It's like the P/E on a stock.  There's no "right" value that the price will track tightly, but it's still good for a sanity check: if you see a P/E over 100 and there isn't hard evidence of coming growth, it's overvalued.

And when Bitcoin's at $15 and there's not a major new market in the pipeline....  Well, some speculation is reasonable, but at some point it's overvalued.

These kinds of attacks are not limited to HP printers.  HP just makes the most popular networked printers, but any networked printer (like your wifi one) can have the same problem.  Embedded firmwares frequently have poor security, unfortunately.

This.  It's why I support creating a deflation-neutral, bubble-resistant alternative coin.

To me, it says that MH/J (more efficient hardware) and J/$ (miners finding lower cost power) has increased.  It's a scaling factor for the red line.  It's been increasing over time.  Yes, that means the correlation is not constant or linear.  It'd line up closer in line if we corrected for it, but I don't have hard data to plug in.

Instead, apply a general correction:  take the derivative of each and you'll find they correlate pretty well (fudging for some variable lag).

Here's a log chart so you can see the old data better:



Every bump up in the blue line is followed in about 4 weeks by an increase on the red line.  Drops in blue cause red to flatten, though it doesn't fall easily since a) miners' sunk costs mean they generally stay online during mild drops, and there was a long overshoot in June-July which took a long time to correct; b) MH/J (and other efficiency and mining cost factors) is increasing.

It's also particularly skewed in late 2010 due to the switch from CPU to GPU mining.

None of that is corrected in the charts, which is why I say that price is ONE factor feeding difficulty, not THE factor.



Don't look at low vs high.  Look at rising vs falling.  On the Difficulty side it's more rising a lot vs only rising a little (again, the MH/J skew, among several other factors).



I'm not insulted.  I do appreciate the criticism.  It was just a frustrating distraction since it didn't matter whether I was right or wrong; I just wanted to hear how bitcoinBull's logic went, since I've heard that general theory before and it seemed bizarrely nonsensical.




Oh, I know better than to try to model the market, but I do think my vague hand-waving model is reasonably correct for modeling difficulty - again, using all the factors I mentioned (and a few more, but again, this is all beside the point), not just price.

Well, no, the supply is constant.  Difficulty is a measure of demand.


The 51% attack is only one threat to Bitcoin.  The network would be adequately defended against double-spends at 5% the current difficulty (it had better be, or we'll have big problems when generation starts dropping).

IMO key management is a much bigger threat to security, and by proxy, confidence.  It's not measured in the difficulty at all.

Thanks though.  I at least get where you're coming from: that greater security of the system creates more intrinsic value in the system, and therefore justifies a higher price.  I'm not sure if that's properly called a Pf, but it's an interesting concept.  I'll give it some thought.

What resistance?  We ran right through $5 like it wasn't even there on the 1st.

It'll probably find a little psychological support for a while just for being a nice round number, but that's it.

How do you generate a public key without assembling a full copy of the private key in one place?

What advantage will this have over generating my own seeds?

I didn't say it was linear, constant, or that there were only two quantities:


Those are the major current ones, but more could be added.


That's why I list "available MHps offline after a price drop" as an input.


My chart shows that a relationship exists.  I claim that price is one variable that feeds forward into difficulty, not that it's a simple linear relationship.  I do not claim it's an eternal principle.  Quit trying to spin it like I am.

...

And you're entirely missing the point.  Here's what started this whole thing:


bitcoinBull thinks I should be using difficulty to compute price.

All I'm saying is is that there are both logical reasons and rough empirical evidence showing that price feeds forward into difficulty (not that it's the only factor; not that it's an eternal principle; not that it's a linear relationship; simply that it's one variable that feeds forward) - that there is some kind of causal relationship in that direction.

...  But that I don't see any evidence that difficulty has any predictive power for price, and I don't see any logical reason why it should be a significant variable in an idealized formula for fundamental price.

And I'm asking why he thinks it should be.

Fiat transfer is actually pretty efficient when you're not a lowly consumer.  Large imbalances get handled in the forex markets.  The regulation is minimal and you pay no fees... Just the spread, which is in the low hundredths of a percent.

Bitcoins can very much improve the situation compared to international wires.

You don't see any correlation in the price vs difficulty chart I posted?

And yes, I know how the news correlates...  I'm responsible for a couple of those charts. 

Look at the urls.  www. mtgmx .tk ...  It's a plain old phishing scam.

If you look at https://blockexplorer.com/ the blocks are moving along at a reasonable rate.  I'd say Bitcoinwatch is broken, possibly related to the other site outages.

If Bitcoin is widely adopted, yes, but remember where that $200M comes from: inflation (IE, devaluing your coins) and to a smaller degree, transaction fees.  We have to get to $10B in commerce before that cost drops under 2% of all money flow.

It's a plausible outcome, but it's an optimistic one.  I consider these scenarios equally likely: Bitcoin remains an interesting but niche currency, and just wallows around unable to sustain that high of a market cap; or another cryptocurrency with more appealing properties comes along and all but replaces Bitcoin.


Worst case, we have either of the above scenarios and never reach $30, and you lose as much as you can tolerate before you capitulate.

In a better case, wild speculation doesn't get us to $30, and we have to to slowly, gradually achieve it with commerce.  You make your investment goal, but it takes 5 years.  15% ROR is OK, can't complain, right?  It's better than losing it, but it's not exactly stellar success for a very high risk investment.

Or Bitcoin could be wildly successful.  I'm optimistic, but I still need to see real, widespread adoption before I become confident.  Don't lull yourself into thinking that it's too good to fail.

I do understand the fallacy.  Correlation != causation.  I've said it in great frustration many times.  But now I feel like I've fallen into a bizarre alternate reality where that message got repeated too often, and everyone has now concluded: "... and therefore, causality does not exist."


I agree with everything you just said there.  I absolutely agree that the relationships are not constant.  But working within your concession, and with a year of good data that coarsely supports the theory, I think it's fair to postulate ergo propter hoc, and that I'm not running afoul of a fallacy in doing so.

Your quote is about the fact that the market is too complicated to model accurately, and too fleeting to easily test a theory with any respectable degree of scientific rigor.  I entirely agree - it's very hard to show causation when any given correlation could be the side effect of a near-infinite supply of other factors.

Nonetheless, it is not a logical fallacy to suggest that there are causative relationships in the market.  They're there!  They're just hard to prove.  The best we can do is theorize, then see how well our theories predict the future.  That's the whole basis of analysis.

Difficulty clearly correlates strongly with price.  It's not direct due to all the other factors I mentioned, but there is a causative relationship somewhere in there.

Good, we're on the same page, then.

I look at it like an SMA with some upward bias: after the price levels off at bottom an SMA will keep falling, whereas difficulty goes flat quicker (some miners keep mining even when somewhat unprofitable); when the price then goes up a level SMA will start turning up quickly whereas the difficulty lags a bit more (a few miners are willing to start when it's less-unprofitable, but most wait until the price goes high enough to make profit at a difficulty level).

In the end, it's just a lagging indicator of price, just with some extra factors thrown in ($/kW, MH/J, miners' inertia to start or stop mining, available MHps offline after a price drop, the $/MHps for new hardware) that aren't relevant to the fundamental value of a coin.

So for pricing purposes, how is it any more enlightening than an SMA45?

If the price goes up, more miners come online and boost difficulty.  If it drops, they get out because it's not worth the power and difficulty falls.

The compliment happens to a degree: if difficulty is high, some people will buy coins at the market instead of mining them, thus boosting the price.

I think the first effect completely overpowers the second, so difficulty is a lagging indicator of price.  And so far, it looks that way to me:



Do you have any evidence to the contrary?

Price is just a proxy for value.  Before there was a price on an exchange, there was still stored value.  It was harder to quantify, but it still conceptually existed, and would fluctuate with need.  Without even buying or selling actual goods, the demand for novelty was enough to support the very low value per coin at that time.

At $5, you need a lot more than novelty.

Yes, I'm basically modeling it as a transactional currency, and considering the store of value as one aspect of a transaction (all stored value is intended to be spent eventually).  That's basically true for now: the value is too unstable to be a reliable value store, so people seeking a transactional currency won't store much money in BTC.

That's a weakness in the model: a very large and hard to quantify part of the formula is the amount of BTC held long for speculative value.  The actual transactions are small, and the computed value can vary a lot depending how you fudge the variables.

On the other hand, that's also it's strength: any attempt to compute the value based solely on the MAIN current use of Bitcoins (as a speculation vehicle) is completely detached and self-referential, and can be used to justify any price.  Off to the moon we go.

Edit:  Oh, don't get me wrong.  It's going up short-term.  I just don't see it lasting for more than a few months before reality sets in again.