If value tanked (due to numerous reasons) would miners still be mining? Would the value be guaranteed by the price, or vice versa, or are we talking complex market dynamics not being the same as cryptographically secured networks?
If the value fell below what it costs to mine for more then a short period then no miners would not continue to mine. This would not be a sudden occurrence as miners would be taken offline gradually, which would cause the difficulty to decrease until the cost of mining plus some amount of return on investment would be less then the amount that the mined bitcoin can be sold for on exchanges.
As you've alluded to, the argument here must differentiate between the short run and the long run. A miner will continue to mine in order to either maximize his profit or minimize his loss as long as his revenue is greater than or equal to his variable costs. Revenue in this case must be denominated as BTC exchanged into whichever currency variable costs must be paid in. For example a miner's Variable Costs = Electricity Bill, which must likely be paid in his nation's fiat currency.
A miner is certainly capable of producing and holding BTC speculatively, hedging on BTC rising to cover his sunk costs ( = electricity used to mine aforementioned BTC). The miner's willingness to speculate does, relatively speaking, decrease supply and therefore should dampen BTC's price movements under its cost of production--but only slightly. I.E. a figure I read recently noted miners produce around BTC 3,600 while the market transacts BTC 60,000 where most miners sell the majority of their BTC immediately. So this speculative hoarding mentality, while it lasts, would have a debatable price impact; certainly not enough to mitigate any major negative events but perhaps enough to provide a semblance of stability within a certain price range.
From my understanding electric bills should come monthly or bi-monthly, so the short run should probably be defined as a month to be safe. Other fixed costs, like lease/loan payments, would not be considered until the miner could 'cut his losses' so to speak and minimize his loss by exiting the market. However mining is global, with widely varying costs, which would give a wide range of 'resistance points' of varying tolerance for each mining operation, thereby weakening any mitigating effects we see in BTC prices.
tl;dr:
If it costs them $600 to mine 1 BTC but bitcoin is only selling for $500 then why would they not stop mining and then use the $600 to buy 1.2 BTC on an exchange? If they were to continue to mine they would be essentially paying above market rate for something they can easily pay the market rate for.
Great point! This is true, however this argument has the same 'sunk costs' caveat. Miners would only cease production if BTC cost more to produce in electricity (variable costs) than they have reason to believe they could earn (speculating on price fluctuations) in the interim between now and their fixed costs being due. You would be absolutely correct that such a miner would cease operations if they expected BTC prices to stay depressed under their variable cost of production until they could have an opportunity to exit the market. However contracts such as leases can force participants to continue operating in their market (at a loss) by limiting their ability to freely exit that market, which equate to mining BTC at a net loss for a duration.
My first post!
