Medium-term market analysis

[0mzUBBru]

I give a prognosis on the BTC/USD exchange rate.  I'll try to keep this post
updated as I learn new facts.

The Bitcoin price is determined by demand and supply.  So if we want to
understand where the Bitcoin price is going, it is useful to understand how
demand and supply will change.

Demand, or why people buy Bitcoins for fiat

• as a long-term investment
• for "legit" gambling (SatoshiDice, etc.)
• for buying products and services (SR, mullvad, etc.)
• for gambling on HYIPs

Currently, I have no indication that the momentum of the first three will
change significantly.

But due to the collapse of BTCST, most demand created by HYIPs is gone.

As a side note: The BTC price reached a local minimum around 2$ in December
2011 and has steadily raised since.  BTCST was started at about the same time.
I think this indicates, that BTCST indeed contributed to higher demand.

Supply, or why people sell Bitcoins for fiat

• to cash-in on profits (from business operations or savings)
• to cover the cost of mining

Every month about 200k BTC are created from mining.  And it is likely that most
of them hit the marked to cover mining costs.  We know that the reward for
mining will half in December.  But other than that, I can't make any safe
assumption.  So my best bet is to assume that there is no big change until
December 2012.

It is still possible that pirate will sell some of his assets, which would
increase supply somewhat.

Medium-term market analysis

So what is my prognosis until December?

I think the price will be pretty stable.  But due to less demand and constant
(or even somewhat increased) supply, I expect the price for Bitcoins to go
somewhat down.

I'm not sure where the bottom is.  It could be 8$, 5$, or even less.  I'm also
not sure when we reach the bottom, but I think mid/end-November is likely.

I don't think, that the marked will collapse medium-term, mainly due to the
block reward halving in December.

Whether the price will be stable long-term depends on how the Bitcoin economy
develops.  100k/month new BTC from mining is still a lot.  And I think without
demand due to HYIPs, the Bitcoin is currently overvalued.

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[byronbb]

Nice post. Hopefully there are some uses for bitcoins that are not publicly known, otherwise I have to agree with the call towards a down trend.

[Serge]

except very short-term possibility of price decrease due to BTCST drama  there is nothing else suggesting price should be decreasing mid-term, on contrary market confidence is strong, there is continuing exposure of bitcoin related topics in the media which keeps building momentum for another possibility to rally, VC talks, ASICs, reward halving... we're going up or at the very least keeping stable $9-12 range

[beckspace]

100k/month new BTC from mining is still a lot.

+1. It is. Four more years of perceived inflation, THEN, things start to settle. It's a long run.

[zby]

I personally think that this is just a good moment for a mid-term trend reversal.  We had too many weeks on green - this shock is a good starting point for a correction.

[0mzUBBru]

except very short-term possibility of price decrease due to BTCST drama  there is nothing else suggesting price should be decreasing mid-term

What exactly should cause a short-term price drop, and how?

I think currently people have a lot of USDs in the exchanges.  Short-term (1-2 weeks) I'd tend to assume that the price will be stable, or maybe even go up/rally.

on contrary market confidence is strong, there is continuing exposure of bitcoin related topics in the media which keeps building momentum for another possibility to rally, VC talks, ASICs, reward halving... we're going up or at the very least keeping stable $9-12 range

Until mid-December 800K more Bitcoins are mined.  To keep the price at $10, somebody has to spend 8 Million USD to buy them.  I may be wrong, but I don't see where this money should come from, without people handing in their paychecks to invest in a HYIP.  I agree that media coverage increases demand.  And I also think that reward halving is a stabilizing factor.  Without that, I'd predict a stronger down trend.

Don't get me wrong.  Long-term I expect a massive up trend (with a small chance for a total collapse, e.g. because of advances in cryptanalysis).  But medium-term I'd still assume a correction.

How exactly would ASICs effect the Bitcoin price?  I would assume "not at all", no?

[Killerpotleaf]

when the new bear market can clearly bee seen on the graph, panic selling will bring us down fast.

but the end of this new bear market will be hard to foresee, it will quickly and aggressively turn bullish.

why? because this time their is more people and cash on the side lines then ever b4  ( even more people and cash then when 2$ happened )

the next bull run will be epic!

[Serge]

except very short-term possibility of price decrease due to BTCST drama  there is nothing else suggesting price should be decreasing mid-term

What exactly should cause a short-term price drop, and how?

I think currently people have a lot of USDs in the exchanges.  Short-term (1-2 weeks) I'd tend to assume that the price will be stable, or maybe even go up/rally.

Once pirate starts releasing lenders' funds there may be a rush some of these coins to exchanges, if this is what market anticipates that's what will happen; current bid depth backs this anticipation.

on contrary market confidence is strong, there is continuing exposure of bitcoin related topics in the media which keeps building momentum for another possibility to rally, VC talks, ASICs, reward halving... we're going up or at the very least keeping stable $9-12 range

Until mid-December 800K more Bitcoins are mined.  To keep the price at $10, somebody has to spend 8 Million USD to buy them.  I may be wrong, but I don't see where this money should come from, without people handing in their paychecks to invest in a HYIP.  I agree that media coverage increases demand.  And I also think that reward halving is a stabilizing factor.  Without that, I'd predict a stronger down trend.

Don't get me wrong.  Long-term I expect a massive up trend (with a small chance for a total collapse, e.g. because of advances in cryptanalysis).  But medium-term I'd still assume a correction.

That's assuming that all these new mined coins end up on exchanges right away. I don't believe it to be true. More so following your logic we should be in constant price decline ever since Bitcoin creation since all there coins needs to be bought and we are in a strong inflationary phase.

there were no bitcoin HYIP talks outside of this forum and very few recent articles in the media about it, I think it is safe to assume HYIPs weren't a major factor in driving new money to exchanges, although I do believe that pirate's operation took away good portion of speculative funds out of exchanges causing deficit in supply and driving prices up but I wouldn't give all credit for the recent rally to pirate as there were a lot of mention of Bitcoin outside this community past few months.

How exactly would ASICs effect the Bitcoin price?

ASICs will have overall positive effect on the network providing greater security and confirming to the rest of the world that Bitcoin isn't just some hobbyist geeky play money. Difficulty along with reward halving will also influence the price even though there is no direct correlation between difficulty and the price.

[0mzUBBru]

following your logic we should be in constant price decline ever since Bitcoin creation since all there coins needs to be bought and we are in a strong inflationary phase.

No, I'm just saying that the price is determined by demand and supply.  If demand or supply change, the prices is affected.

[Technomage]

My analysis:

The price has most likely been affected by Pirate's operation in the past but I think that the effect hasn't been that big. The future effects have more to do with how much panic crashing can the market take before people lose confidence in Bitcoin as money, again. The effects have absolutely nothing to do with Pirate or his lenders potentially selling coins.

People think there is "a lot of coins" involved. Newsflash: there is not. There are a lot of imaginary coins involved. Mostly it's imaginary interest figures. All the analysis based on "Pirate lenders selling the coins they get back" or "Pirate selling his own coins" is also complete BS speculation. If any of them want to sell it's quite unlikely that they would want to cause a panic in the market while doing it. Most likely the people selling would be OTHERS who are mass-illusioned to thinking that the Pirate lenders will sell, so they sell instead.

Smart sellers and buyers do their thing when it's quiet. Like, right now. Unless the purpose is to manipulate the market and profit from that, which is a different story. But simply "cashing out" en masse, give me a break. That makes no sense, unless the market starts panicking.

I see this whole thing as nothing else as a massive inducing of a panic by a bunch of market speculators. If you disregard the Pirate fiasco, Bitcoin is doing better than ever and the outlook is very good. Massive selling makes no sense especially now that we already made a 30% correction from the $15 bubble.

In fact, this whole year we've had a couple of fiascos. First was the stuff with Bitcoinica, which has mostly been forgotten already. Then we had Pirate, which is a bigger deal but still, fundamentally Bitcoin has been growing all the time. I see this as mainly a problem of speculation. All of this is about speculation. Bitcoinica was about reckless gambling. Pirate's investment fund was about even more reckless gambling. Now we have people inducing panic with excuses that have to with Pirate or his lenders, simply to profit from the panic selling market.

From a legitimate users' point of view this year has proven that the biggest use of Bitcoin, even bigger than Silk Road (which is drug trade) is speculative gambling. I think that is sad. The current state of Bitcoin is actually very sad in my opinion. I have high hopes though that this will gradually get better as other uses of Bitcoin grow. It's just really frustrating because I couldn't care less about Pirate. It's beyond ridiculous how stupid people are.

In fact I see no problem in the drug trade, porn, regular gambling or anything like that. Adults can trade anything they want in a free market. That is real trade, however. Speculative gambling is different and the 2 fiasco's of this year BOTH have to do with that and they are pretty much the only sources of instability for the market right now.

Enough with the bad and frustrating stuff though, I don't even want to think of that crap. I'll remind everyone that there are some things going on that could cause significant upward pressure:

- Block reward halving is happening in less than 3 months. This is the most significant supply side change in the history of Bitcoin, which will continue to cause upward pressure. Especially now that we're a few months away.

- BitInstant Debit card is coming, which is the most significant development since Silk Road.

- Bitcoin project will make an announcement this month, the announcement and the implications of that announcement are unknown though. I'd say that is still neutral as far as the price is concerned.

[Technomage]

I almost turned into a bear writing that post, which is rare for someone like me. The thing is that from the perspective of a Bitcoin user who does not do speculative gambling, this recent Pirate phenomenom and the relevancy people give it, is so absolutely disappointing. The whole community seems like it's full of reckless gamblers that don't care about anything other than short term profits. This has actually gotten worse in some ways compared to last year, which is so very disappointing.

[JMAHH]

I give a prognosis on the BTC/USD exchange rate.  I'll try to keep this post
updated as I learn new facts.

...

For demand, you have neglected new entrants.

I think it's safe to say that Bitcoin is generally increasing in popularity. With more people entering the market, upward pressure is put on the rate.

[Technomage]

I'll add to my previous analysis that I do think that it is slightly more bullish if Pirate doesn't payout. It's likely that he is going to be careful with the coins after scamming so many people so if any sell-offs happen from him it's going to be distributed over a long period of time in a careful way. Most of the market has already accepted that he won't pay and the large effect has been seen so this is likely to cause very little of anything.

If he does pay, I think there will be some panic selling by speculators in general, simply because so many people are trying to induce panic by sharing "analysis" on how these lenders will supposedly sell their coins right away (which makes no sense, but that doesn't matter in these "analysis"). This panic can happen because it "makes sense" to panic because "some of them might sell". It's silly, but who said markets aren't silly? It's all about mass psychology and currently we're in super sheep mode.

[RyNinDaCleM]

My analysis:...

Nice post!
The main type of person I see, that would just recklessly cash out once they received their pirate funds, would be the one who only bought to invest in the too good to be true interest rates, and has no desire to hold BTC. Still negligible IMO.

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

[thezerg]

I almost turned into a bear writing that post, which is rare for someone like me. The thing is that from the perspective of a Bitcoin user who does not do speculative gambling, this recent Pirate phenomenom and the relevancy people give it, is so absolutely disappointing. The whole community seems like it's full of reckless gamblers that don't care about anything other than short term profits. This has actually gotten worse in some ways compared to last year, which is so very disappointing.

I don't think you should be too worried.  I think we'll remember the summer of 2012 as the time when the amateurs got washed out.  There was clearly going to be a time when the price of a bitcoin grew to the point where it attracted a lot of black hat attention.  That time is now :-).  There professionals are moving in, both new services, bitinstant for example, and the older services that have been dinged but grew up fast and solidified their operations (Gox for example). 

Also, WRT upward pressure you only mention bitcoin related items.  But do not forget the larger economic situation, in the forefront right now the Euro and the other PIIGS.  The Greece situation will come back to the front pages short-medium term.  And long term, many other countries USA Germany are very bad WRT debt as well.

Also, Bitcoin really saves $ as an international currency, and so the increased trade volumes in Asia, especially in btcchina, is very interesting.  Because when buyers in the USA meet the suppliers in China and BOTH already use bitcoin we'll get rapid escalation of BTC velocity (1-2 years out).  And the savings will force others in these extremely competitive low margin marketplaces to adopt bitcoin or lose sales.

[Serge]

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

ASICs will have huge indirect impact on Bitcoin economy from network security and stability stand point where Bitcoin will be taken more seriously by outside folk seeing it now (when asics hit market) runs on its own specialized hardware, which had to be R&D'ed first - this should provide great level of confidence in network and the project over all.  It won't be looked as though any pc gamer could mine Bitcoin with their GPU - for some outside people this fact provided plenty of fuel to ridicule the project without giving much thought what is it and how it works on the inside.

ACISs are GREAT step forward for Bitcoin.

[mobodick]

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

ASICs will have huge indirect impact on Bitcoin economy from network security and stability stand point where Bitcoin will be taken more seriously by outside folk seeing it now (when asics hit market) runs on its own specialized hardware, which had to be R&D'ed first - this should provide great level of confidence in network and the project over all.  It won't be looked as though any pc gamer could mine Bitcoin with their GPU - for some outside people this fact provided plenty of fuel to ridicule the project without giving much thought what is it and how it works on the inside.

ACISs are GREAT step forward for Bitcoin.

Why do you think you understand 'outside folks' behaviour and why do you think they would care about how bitcoin is generated?
How (in what amount) will ASICs influence network security and stability and why would this be enough for a huge impact on how 'outside' people see bitcoin?
Remember that ridicule itself never prevented anything substantial from becoming popular, just helped it getting burried after it peaked.

[notme]

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

ASICs will have huge indirect impact on Bitcoin economy from network security and stability stand point where Bitcoin will be taken more seriously by outside folk seeing it now (when asics hit market) runs on its own specialized hardware, which had to be R&D'ed first - this should provide great level of confidence in network and the project over all.  It won't be looked as though any pc gamer could mine Bitcoin with their GPU - for some outside people this fact provided plenty of fuel to ridicule the project without giving much thought what is it and how it works on the inside.

ACISs are GREAT step forward for Bitcoin.

Why do you think you understand 'outside folks' behaviour and why do you think they would care about how bitcoin is generated?
How (in what amount) will ASICs influence network security and stability and why would this be enough for a huge impact on how 'outside' people see bitcoin?
Remember that ridicule itself never prevented anything substantial from becoming popular, just helped it getting burried after it peaked.

It greatly influences the security by eliminating an attack vector that is 10-100X as efficient as current mining.  If the NSA (who has their own foundry) wanted to attack bitcoin, they could easily produce their own asics and 51% the shit out of the current network for only a few million dollars.  Once ASICs are in the wild, they once again are forced to compete on number of units and that is a much harder battle to win.

[mobodick]

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

ASICs will have huge indirect impact on Bitcoin economy from network security and stability stand point where Bitcoin will be taken more seriously by outside folk seeing it now (when asics hit market) runs on its own specialized hardware, which had to be R&D'ed first - this should provide great level of confidence in network and the project over all.  It won't be looked as though any pc gamer could mine Bitcoin with their GPU - for some outside people this fact provided plenty of fuel to ridicule the project without giving much thought what is it and how it works on the inside.

ACISs are GREAT step forward for Bitcoin.

Why do you think you understand 'outside folks' behaviour and why do you think they would care about how bitcoin is generated?
How (in what amount) will ASICs influence network security and stability and why would this be enough for a huge impact on how 'outside' people see bitcoin?
Remember that ridicule itself never prevented anything substantial from becoming popular, just helped it getting burried after it peaked.

It greatly influences the security by eliminating an attack vector that is 10-100X as efficient as current mining.  If the NSA (who has their own foundry) wanted to attack bitcoin, they could easily produce their own asics and 51% the shit out of the current network for only a few million dollars.  Once ASICs are in the wild, they once again are forced to compete on number of units and that is a much harder battle to win.

Even if/when ASICs are available the NSA could crunch the 51% if they wanted.
They would have no need to get investment back so can design their own stuff and duplicate them for realy realy cheap.
And as if the NSA has no SHA crunching capabilities already...
NSA SHA capability > bitcoin community SHA capability.
And this will not change anytime soon.

[notme]

@serge, ASIC (if real) will have a definite short to early mid-term effect on price, due to the massive amounts of coins produced early on before difficulty catches up. As BFL will most likely trickle these out, it could take months (possibly up to a year) for difficulty to catch up. Until that happens, there will be a higher than usual amount of downward pressure on the market.

ASICs will have huge indirect impact on Bitcoin economy from network security and stability stand point where Bitcoin will be taken more seriously by outside folk seeing it now (when asics hit market) runs on its own specialized hardware, which had to be R&D'ed first - this should provide great level of confidence in network and the project over all.  It won't be looked as though any pc gamer could mine Bitcoin with their GPU - for some outside people this fact provided plenty of fuel to ridicule the project without giving much thought what is it and how it works on the inside.

ACISs are GREAT step forward for Bitcoin.

Why do you think you understand 'outside folks' behaviour and why do you think they would care about how bitcoin is generated?
How (in what amount) will ASICs influence network security and stability and why would this be enough for a huge impact on how 'outside' people see bitcoin?
Remember that ridicule itself never prevented anything substantial from becoming popular, just helped it getting burried after it peaked.

It greatly influences the security by eliminating an attack vector that is 10-100X as efficient as current mining.  If the NSA (who has their own foundry) wanted to attack bitcoin, they could easily produce their own asics and 51% the shit out of the current network for only a few million dollars.  Once ASICs are in the wild, they once again are forced to compete on number of units and that is a much harder battle to win.

Even if/when ASICs are available the NSA could crunch the 51% if they wanted.
They would have no need to get investment back so can design their own stuff and duplicate them for realy realy cheap.
And as if the NSA has no SHA crunching capabilities already...
NSA SHA capability > bitcoin community SHA capability.
And this will not change anytime soon.

The point is once they are in the wild it becomes between 10 and 100 times more expensive to perform the same attack.

How is that not an improvement?