Back in April, one could buy a bitcoin for $1. As the bitcoin bubble deflates, prices should return to pre-bubble levels.  It has been argued in a bubble thread that this one should be completed by the end of August.

From the price chart, below $10 I see support at $8.  But the current downdraft - July 5 - has such momentum that it may simply blow past these supposed supports.

Expect false rallies from the bottom.  You might be tempted to buy too soon.  Back in April before the bitcoin bubble, one could buy a bitcoin for $1 or less.

The bitcoin market, as opposed to the bitcoin economy, must become unloved and neglected - the bottom can be expected to have relatively low volume, an absence of speculators, mostly merchants, customers and miners conducting routine transactions.

Given that in April one could buy a bitcoin for $1 or less, I think that we will see those sorts of prices again when the bitcoin bubble fully deflates.  Its been argued on another thread, analyzing comparative bubbles, that this one should be over by the end of August, 2011.

Note that I sold at $15.5 and have my cash at Mt Gox awaiting the bottom.

Back in April, 2011, one could purchase a bitcoin for $1 or less.  Since then we have experienced a brief but sharp bubble that is in the process of deflating. It has been argued in another thread that the bubble should be deflated by the end of August and that prices should drop to the pre-bubble level.

I am a bitcoin miner, and I expect difficulty to slowly rise and either level off or decline as unprofitable miners stop mining.  As the overall network hash rate declines, remaining individual miners will earn more bitcoins for a given amount of mining activity.  In the scenario I expect, these future revenues will be lower than what miners are earning now.

The design of the bitcoin protocol is such that competitive miners should push the network hash rate to the level where the marginal miner pays their electric and air conditioning bills, depreciates their mining rigs, and make a small profit to justify the venture.  I think that the days of paying off a new mining rig in a month or two with earned bitcoins are gone.

The original post was helpful to me. It drew my attention to the weak price behavior at Mt Gox.  I moved my hoarded bitcoins from 12 months of mining over to Mt Gox and sold them in various small lots at about $15.5.  When BTCGuild gets past today's DDoS attack, I'll sell off my recently earned coins too.

It really is more relaxing to be sitting on the sidelines with cash at the exchange watching this downdraft.  As I write this post, Mt Gox has been dropping at the rate of $0.11 per hour for over a day within a channel on the price chart - just broke past $12 to $11.89.

[update] the channel has just been broken on the downside with a quick move down to $11.

There is a slight risk that some other party will take the other side of the trade because the exchange computers perform the order matching.  Thus, fooling around with dummy trades in a trending market could expose the dummy trader to the trend - its not entirely risk neutral.  So I expect that such dummy traders have been burned in the recent Mt Gox downdraft and either liquidated - if thats where they want to be, or holding current positions - if thats where they want to be.  To put it another way, by conducting dummy trades that have a chance of non-dummy fills, the dummy trader takes the unintended risk of real trading.

Actual market markers are not trading with themselves and their market-making behavior is more efficient when there are zero commissions, as is the case with the conventional FOREX (foreign exchange) market.  I applaud the lower and zero commissions at Mt Gox.

At what price point would you be a buyer of bitcoins?

My interpretation of charts is mostly to explain what is happening - or better what has recently happened. Chart reading has limited predictive power for traders.  The channel I am now fascinated with held again at its upper trend line - $12.56 - and prices in the last few minutes have dipped to $12.03.  [update] $11.19

Who knows when the channel will have a breakout - at least for a pause. I have little to offer regarding noise, volatility, low volumes and other factors.  Except that relatively low volumes and tranquil trading activity may be indications of a bottom - when those features occur.

Agreed,I believe the channel will have a breakout, to at least a pause soon.

Botnet wranglers I think are lazy people who would rather focus their talents on no-competition illegal activities, than on something economically profitable and legal.

However, there is no technical reason that I know of to prevent the formation of a pool with unlawful miners.

Worked great for me up until a few hours ago.  Now the WebSocket is closed immediately.  Google Chrome & Ubuntu.

As I write this post, Mt Gox has dropped $3 from about $15.5 to $12.5 in a little over a day.  And it looks like this price action is confined to a channel.  If there is no breakout from the channel, we will be at the $1 price level in only 5 days.

Insightful analysis!

Here we are in early July, 2011 and the end of August is just 8 or so weeks away.  At the time of this posting, Mt Gox shows a channel-bound decline of $0.11 per hour over the past 27 hours.  At this rate of decline, the $1 price would be reached in only 4.3 days.

In contrast to your own opinion, I believe that there is in fact a bitcoin bubble in the process of deflating.  The rate of decline on Mt Gox is currently within your model's constraints to complete before the end of August.

Good example of negative sentiment.

My mining operation is currently affected by the botnet problem.  Here is my understanding of what is being discussed on the BTCGuild pool thread.

A botnet consisting of thousands of nodes was configured by its operator to conduct CPU mining and used BTCGuild as the pool.  These CPU mining workers earned a very low amount of coins each, but in total overwhelmed the pool servers operated by BTCGuild.  As a result of analyzing the situation, the BTCGuild operator blacklisted the IP addresses of the CPU miners - no doubt affected a few legitimate miners who do not care about inefficient mining.

The botnet operator, now denied his bitcoin earnings from BTCGuild, retaliated by performing a distributed denial-of-service attack against BTCGuild.  In such a DDoS attack, each botnet node pretends to be a real pool mining client, but floods the victim server with an overwhelming number of fake requests - thus precluding access by the legitimate clients.

At the time of this post, BTCGuild is offline, and being enhanced to cope with this DDoS attack.  Details can be obtained from the BTCGuild forum thread in the pool section.

An unknown, but substantial portion of miners are hoarding bitcoins.  It is a hassle for the small miner to establish an exchange and dwolla account in order to liquidate their mined coins.

I respect your analysis but guess the figure might be closer to $50000 per day than to $100000.

My own contribution to this analysis is that the new cash required to support bitcoin prices drops directly with the price of bitcoins.  So, suppose that as the bitcoin bubble deflates, prices return to April 2011 levels, i.e. around $1 per bitcoin.  Then to keep the price of bitcoins stable, the market would not require $50000 per day, but rather only $7200 per day.

Once the bottom sets in, it will not take much buying power to turn it around.  That's why I think that there will be one or more premature rallies off the bottom, that will make the bottom hard to figure out.

I expect that if the price of bitcoins falls back to April levels as the bubble deflates, you would be delighted to buy some more at, or under, one dollar each.

I liquidated my 12 month mining hoard at $15.5.

As I write this, the price on Mt Gox just dropped through $13 and is at $12.75.  Way back in April, 2011, one could buy a bitcoin for a dollar.  I speculate that we will return to at least the April price level as the bubble deflates.

I liquidated my 12 month mining hoard at $15.5 and will get back in when the bubble fully deflates.  Sentiment has to be very negative for the bottom to set in, and expect premature false starts on the way back up.  

Examples of negative sentiment would be

• mining difficulty - slower growth, leveling off, or decline
• miners selling their rigs
• long time hoarders cashing out at very low prices and giving up on bitcoins
• ASIC developers postponing their mining chip development due to unfavorable economics
• continued decline in the Google Insight popularity of "bitcoin" searches
  
• forum posts arguing that price watching/obsessing is not important

I plan to investigate bitcoin economy indicators to see if there is a way to predict bitcoin value due to merchant/consumer/miner activity.

Unfortunately, one cannot observe gap patterns if the market never closes.  The daily price charts from Mt Gox for example, arbitrarily choose a market open time point. Gap patterns reflect dramatic changes in trader sentiment during the period that the market is closed.  Other technical indicators that track momentum do not have this problem, e.g. moving averages.