Bitcoin Price Drop

[miscreanity]

The current drop certainly has a panic sell feel to it. If this were simply due to oversupply, I'd expect a continuing gradual decline similar to what we were seeing from ~$15/BTC to ~$12/BTC. This doesn't seem to be a typical mass sell-off, though. It's more like an individual or small group of sellers with a lot of capital to dump on the markets, possibly using algorithm trading. Too much rapid probing action for me to think otherwise.

With the recent issues at MyBitcoin, I have to say that I am suspicious. However, proving this isn't my priority, nor would it matter as the damage has already been done; a waterfall was triggered. As long as the exchange remains above the $5-6/BTC level, mining remains profitable in major currencies and I wouldn't be too concerned about these growing pains. I think it is unlikely that Bitcoin will go to zero - it requires actual work to produce and cannot realistically be destroyed, much like gold. In fact, I find that BTC/NMC are very similar to gold/silver, respectively.

From loose personal observation, the Bitcoin exchange rate seems to presage major equity markets, which isn't too surprising. I imagine there are a good number of savvy financial-types taking part in this, easily capable of sophisticated technical analysis. Dabbling in the Bitcoin markets could be a form of front-running established ones.

As for the whipsaw action today, limitations of information available on overall holdings (market cap) and volume, in addition to dark pools, make it very difficult to gauge where the demand/supply will settle. Sure, lines on charts can help but they don't tell the whole story. There isn't really enough of a pattern history to determine reasonable swing ranges either. Of course, as the markets mature, these patterns will become more clear.

My view mirrors what has been suggested by others - the Bitcoin environment absolutely requires universal accessibility without needing highly technical skill, and a level of security that overcomes concerns about hacking and unscrupulous custodial services. Ideally, this would include a means of utilizing mobile devices to run the client and periodic backup of the wallet to an encrypted online location; the wallet encryption using either strong password encouragement of at least 12 characters or separate storage of the key.

Cryptography isn't my specialty, although the principle seems straightforward enough. With this ruling on identity theft, it is becoming apparent that people will need to keep their online personas and digital information much more secure than in the past. The overall cultural mood is certainly shifting toward that, so acceptance and understanding of encrypted Bitcoin wallets should be a minor hurdle.

Automation is the key. If I can install a Bitcoin client app on my Android or iPhone with the ability to make transactions (QR codes would work perfectly), check my balance and seamlessly backup/restore (even to Dropbox as long as the wallet is heavily encrypted before upload), then it's ready for prime-time. I'd even pay a few USD for the privilege - not everything Bitcoin related has to be paid for with Bitcoins until the system is mature enough to stand on its own.

To sum: hold onto your BTCs and mind the speed bump.

[defxor]

By your analysis, bitcoins should have been super expensive when they were being mined by CPUs.

No. You might want to study Bitcoin's concept of difficulty to understand why.

You might want to read more than the first sentence of the guy's post before responding.

The rest was irrelevant due to the point I singled out. Mining with CPUs wasn't a problem until GPUs came online - and since they were so much more effective that caused a disruptive shift where all CPU based mining stopped. The same will happen in the shift from GPU to ASIC.

During that transition, anyone mining with the more effective equipment can sell their coins at great profit much cheaper than everyone else - who will still have to try to offload them though to pay for electricity.

Anyone not factoring in the shift away from GPU mining right now aren't doing their homework.

[lemonginger]

The rest was irrelevant due to the point I singled out. Mining with CPUs wasn't a problem until GPUs came online - and since they were so much more effective that caused a disruptive shift where all CPU based mining stopped. The same will happen in the shift from GPU to ASIC.

I agree with you that GPU mining will eventually be made unprofitable as ASIC mining (and botnets) takes over, but that has to do with difficulty adjustments, not price adjustments. Difficulty is a lagging indicator of both price and technology available (ie; difficulty will tend to reach an equilibrium where mining with whatever technology is available is slightly profitable - which is why mining is a "race to the bottom"). However, barring cartel action by miners, price doesn't really reflect whatever technology is being used to mine bitcoins. You could blow up all the ASICs and GPUS in the world tomorrow and mining difficulty would still try to adjust to where mining was just barely profitable for most operators at whatever the current price was.

 

[cicada]

Anyone not factoring in the shift away from GPU mining right now aren't doing their homework.

Neither is anyone expecting an instant shift to ASIC mining on a large scale.  No startup is going to be able to offer cost-effective ASIC chips right out the door.

A $2000 ASIC rig that performs 1/4 as well as a $2000 GPU rig is only worthwhile in the very-long-term due to energy savings.  It's like spending $40,000 on solar panels to 'save money'.

<clairvoyancehat>
I think it will be at least 6 months before you can buy an ASIC miner at all, and it'll be a year minimum before they're cost effective
</clairvoyancehat>

Your GPUs are safe for now.

[epii]

Anyone not factoring in the shift away from GPU mining right now aren't doing their homework.

Neither is anyone expecting an instant shift to ASIC mining on a large scale.  No startup is going to be able to offer cost-effective ASIC chips right out the door.

A $2000 ASIC rig that performs 1/4 as well as a $2000 GPU rig is only worthwhile in the very-long-term due to energy savings.  It's like spending $40,000 on solar panels to 'save money'.

<clairvoyancehat>
I think it will be at least 6 months before you can buy an ASIC miner at all, and it'll be a year minimum before they're cost effective
</clairvoyancehat>

Your GPUs are safe for now.

You fail to take into account that defxor said it, and therefore it must be true.

[defxor]

I agree with you that GPU mining will eventually be made unprofitable as ASIC mining (and botnets) takes over, but that has to do with difficulty adjustments, not price adjustments

Yes, and in the meantime those who switch to ASICs can undercut everyone mining with GPUs and still make a huge profit. That creates a downward pressure on the price of bitcoins.

It's the same as in any other resource extracting market, and always happens when there's a disruptive technology shift.

I think it will be at least 6 months before you can buy an ASIC miner at all, and it'll be a year minimum before they're cost effective

https://bitcointalk.org/index.php?topic=14910.msg219049#msg219049

I don't understand what you mean with cost effective. Of course an ASIC rig will be more cost effective from the first second, the actual ROI is something else and depends as much on guesswork about the future as anything else.

You fail to take into account that defxor said it, and therefore it must be true.

Right. Imagining shapes in charts is of course much better

[mizike29]

Yeah I am pretty freaking worried and pissed, you pay 14.5 or 16 for bitcoin, its been stable for weeks at 15 to 13, now in one day drops to freaking 9 bux a coin, making it very very very hard for businesses and investors to trust the market, sell products and goods, and or trade and sell bitcoins if it is so unstable, too much of a loss.  Now I dont know if I should buy again at 9 bux or hold on to my coins and cash from coins I sold in the 15 range and see what happens, but this is a big crash for one day.

[lemonginger]

Yes, and in the meantime those who switch to ASICs can undercut everyone mining with GPUs and still make a huge profit. That creates a downward pressure on the price of bitcoins.

#1) Many more bitcoins will be in the hands of non-ASIC miners.

#2) No other resources dynamically adjust their difficulty to a fixed rate. If you get a magic gold finding machine, the gold doesn't automatically become harder to find after you use it a few times.

#3) All of the price is dependent on miners nonsense only holds true if other bitcoins were being destroyed after use so the only way you could get bitcoins was to buy from a current miner and if the difficulty of mining bitcoins didn't change with technology. It is impossible to have a major disruption in bitcoin supply. Disruptive technology may quickly drive previously profitable mining operations out of business, but it won't do jack to the BTC price which is determined by buyers and sellers. Some of those sellers are miners, many aren't.

[defxor]

#1) Many more bitcoins will be in the hands of non-ASIC miners.

Completely irrelevant. The market price is what someone - anyone - sells at. We already know not all mined coins are being sold.

#2) No other resources dynamically adjust their difficulty to a fixed rate. If you get a magic gold finding machine, the gold doesn't automatically become harder to find after you use it a few times.

The above is only relevant when everyone is using the same technology. This is the second time that won't hold true.

#3) All of the price is dependent on miners nonsense only holds true if other bitcoins were being destroyed after use so the only way you could get bitcoins was to buy from a current miner and if the difficulty of mining bitcoins didn't change with technology. It is impossible to have a major disruption in bitcoin supply. Disruptive technology may quickly drive previously profitable mining operations out of business, but it won't do jack to the BTC price which is determined by buyers and sellers. Some of those sellers are miners, many aren't.

See #1 and #2.

[lemonginger]

#1) Many more bitcoins will be in the hands of non-ASIC miners.

Completely irrelevant. The market price is what someone - anyone - sells at. We already know not all mined coins are being sold.

Correct, so even if your mythical ASIC miners are willing to sell at $2 a bitcoin, doesn't mean anyone else will be. Mining technology only affects mining profitability not bitcoin price! Not sure why you think you have proved otherwise. Did the price crash when ppl started using GPUs?

[Neptune]

#1) Many more bitcoins will be in the hands of non-ASIC miners.

Completely irrelevant. The market price is what someone - anyone - sells at. We already know not all mined coins are being sold.

Your above statement proves lemonginger's point

#2) No other resources dynamically adjust their difficulty to a fixed rate. If you get a magic gold finding machine, the gold doesn't automatically become harder to find after you use it a few times.

The above is only relevant when everyone is using the same technology. This is the second time that won't hold true.

The system is technology agnostic...it doesn't care what is being used as long as about 6BTC per hour are being produced...this is where the difficulty comes in...

[defxor]

Correct, so even if your mythical ASIC miners are willing to sell at $2 a bitcoin, doesn't mean anyone else will be

Mythical? You do know that there's at least one person using ASICs since several months back - just as he began using GPUs before everyone else?

Anyway, I don't know why you believe Bitcoin wouldn't follow free market rules but the answer is that it would indeed cause a downwards price pressure.

Did the price crash when ppl started using GPUs?

Back then people weren't as price obsessed (may - sept 2010)

http://bitcointalk.org/?topic=1009.0

edit: That is, you cannot see anything in the charts to state either way. http://bitcoinx.com/charts/

[miscreanity]

Even with the introduction of ASICs, the transition will be an incremental process, not an instantaneous event. Ramping up manufacturing, distribution and installation of custom boards will take time. Return on investment from them is delayed and scales with parallelism, just as it has with GPU mining. There is still a reasonable horizon for current miners to break even and accumulate a moderate sum of Bitcoins. In this respect, cicada is absolutely correct.

Getting too caught up in the ASIC/CPU/GPU debate can lead you to miss the big picture. It's practically irrelevant, as the natural progression is obviously CPU->GPU->ASIC->&Beyond! Bitcoin can still fail or be indefinitely relegated to niche usage regardless of which method dominates mining. The current stage of adoption is tenuous and its monetary expansion method may well prove to be too rigid.

There is also the possibility of transaction processing building as an alternative to block discovery. While this is assumed to be the end result wheEven with the introduction of ASICs, the transition will be an incremental process, not an instantaneous event. Ramping up manufacturing, distribution and installation of custom boards will take time. Return on investment from them is delayed and scales with parallelism, just as it has with GPU mining. There is still a reasonable horizon for current miners to break even and accumulate a moderate sum of Bitcoins. In this respect, cicada is absolutely correct.

Getting too caught up in the ASIC/CPU/GPU debate can lead you to miss the big picture. It's practically irrelevant, as the natural progression is obviously CPU->GPU->ASIC->&Beyond! Bitcoin can still fail or be indefinitely relegated to niche usage regardless of which method dominates mining. The current stage of adoption is tenuous and its monetary expansion method may well prove to be too rigid.

There is also the possibility of transaction processing building as an alternative to block discovery. While this is assumed to be the end result when there are very few blocks remaining to be found, there may be points where transaction fees offer greater return than mining in the very near future. Again, this is largely independent of the underlying technology.

The rate of block discovery will remain steady on average no matter what technology is used, so the pressure from that is gradual. Price pressure will remain dependent much more on external factors until prices are denominated in Bitcoins. Subjective perception is critical, as is increasing adoption and utilization.
n there are very few blocks remaining to be found, there may be points where transaction fees offer greater return than mining in the very near future. Again, this is largely independent of the underlying technology.

The rate of block discovery will remain steady on average no matter what technology is used, so the pressure from that is gradual. Price pressure will remain dependent much more on external factors until prices are denominated in Bitcoins. Subjective perception is critical, as is increasing adoption and utilization.

[Big Time Coin]

this is btc from mybitcoin

It could be, but several of the people who have sent BTC to addresses for their mybitcoin accounts have noted that the funds have not been moved from those addresses.

That's cause when the site went down, so did the bot that used to immediately send the coins to another account from the receiving account, mix them all up with a ton of small trades, and god knows what else.  If you look at your blockexplorer history for your mybitcoin receiving address you will see what I am talking about.

[SgtSpike]

this is btc from mybitcoin

It could be, but several of the people who have sent BTC to addresses for their mybitcoin accounts have noted that the funds have not been moved from those addresses.

That's cause when the site went down, so did the bot that used to immediately send the coins to another account from the receiving account, mix them all up with a ton of small trades, and god knows what else.  If you look at your blockexplorer history for your mybitcoin receiving address you will see what I am talking about.

I don't have any mybitcoin transactions to look at unfortunately (fortunately?).

[Big Time Coin]

this is btc from mybitcoin

It could be, but several of the people who have sent BTC to addresses for their mybitcoin accounts have noted that the funds have not been moved from those addresses.

That's cause when the site went down, so did the bot that used to immediately send the coins to another account from the receiving account, mix them all up with a ton of small trades, and god knows what else.  If you look at your blockexplorer history for your mybitcoin receiving address you will see what I am talking about.

I don't have any mybitcoin transactions to look at unfortunately (fortunately?).

here's my mybitcoin wallet address:
http://blockexplorer.com/address/15qEeifQfkkgThE81PzaZsEkA79dvaMMXE

[SgtSpike]

this is btc from mybitcoin

It could be, but several of the people who have sent BTC to addresses for their mybitcoin accounts have noted that the funds have not been moved from those addresses.

That's cause when the site went down, so did the bot that used to immediately send the coins to another account from the receiving account, mix them all up with a ton of small trades, and god knows what else.  If you look at your blockexplorer history for your mybitcoin receiving address you will see what I am talking about.

I don't have any mybitcoin transactions to look at unfortunately (fortunately?).

here's my mybitcoin wallet address:
http://blockexplorer.com/address/15qEeifQfkkgThE81PzaZsEkA79dvaMMXE

Those are coins you lost?

I guess there's no way to know whether they went to an exchange address or not though, just that they were moved to a different address.  

EDIT:  Actually, looks like they're stuck as part of the balance here:  http://blockexplorer.com/address/1CCYXczyjvPfRxcppV3Pzg8ppyYxQi49Lw

[walidzohair]

Miners have bills that need to be paid.

+1