Impact of ASIC on price

[jl2012]

Many people think the arrival of ASIC will have impact on BTC price because the ASIC buyers will dump their BTC to recoup their investment on ASIC. First of all, I seriously doubt if this may happen because the buyers should be the most hardcore bitcoin believers, which would be more likely to hoard than dump.

However, just assume the worst case. For Avalon, they are selling 300units with $1300 each, ie. $390,000 totally. Assuming the miners want to fully recoup the $390,000, they need to dump about 28,000BTC and push the price down to about $13.61 (based on the current bid wall).

Please remember this is only the worst case. Since only 3600BTC is generated per day, the 28,000BTC will be generated in 8 days even Avalon takes over 100% of the network. Recently there are many 10,000BTC dumps and the market recovered very soon. Selling BTC3600/day for 8 days will be negligible. Not to mention some AISC owners may decide to hoard rather than dump.

[1713566253]

1713566253

[1713566253]

1713566253

[1713566253]

1713566253

[DeathAndTaxes]

Well $390K plus electrical costs but the larger issue becomes the 2nd round of Avalon, plus BFL first batch, plus any other competitors.  You could see that $390K worst case scenario jumped to something more like $39M over the course of a year.  Remember the first batch is the hard part.  Once production gets ramped up the sky is the limit.  Also it is a sort of sales race as each new miner reduces the value of future sales thus for all competitors the best option is to sell as many units and quickly as possible.

Still I think you may be right I think many miners will hold at least some portion of their coins but I also think you are significantly underestimating the worst case scenario.

[yochdog]

This is not a good assumption.

Look what happened when GPU mining ramped up after the price bubble in 2011.....everyone and their dog was selling every BTC not nailed down to recover investment.

The same thing will happen with ASIC, at least at first. 

[jl2012]

Well $390K plus electrical costs but the larger issue becomes the 2nd round of Avalon, plus BFL first batch, plus any other competitors.  You could see that $390K worst case scenario jumped to something more like $39M over the course of a year.  Remember the first batch is the hard part.  Once production gets ramped up the sky is the limit.  Also it is a sort of sales race as each new miner reduces the value of future sales thus for all competitors the best option is to sell as many units and quickly as possible.

Still I think you may be right I think many miners will hold at least some portion of their coins but I also think you are significantly underestimating the worst case scenario.

Yes I did not count the BFL first batch. What is their total revenue?

When all first batch ASIC are running, the difficulty will skyrocket and the price of subsequent batches have to reduce. $39M is obviously overestimated. With $14/BTC and BTC3600/day, the ROI would be 773 days. However, 773 days is just an average: early ASIC adoptors may have ROI of 30 days, which means latecomers may have >2000 days. And electricity cost has not been considered so the actual ROI for latecomers could be >5000 days. No one will buy an ASIC like this.

I think $3.9M is a more realistic total revenue of all first generation ASICs (including first and all sequent batches). The average ROI would be 77 days. This may extend the BTC3600/day dump to about 100 days assuming the price of BTC is not too low.

However, please don't forget the R&D of first-batch ASIC is supported by free loans from pre-orders. The developers should keep a significant proportion of hashing power because the marginal cost is very low for producing extra units. They are less likely to join the panic selling because they are literally printing BTC for free. If the devs are keeping 50% of the hashing power, their customers will only be able to mint BTC1800/day, which is only 10% of average MtGox volume.

Last but not the least, mine-and-dump activities always exist even before the arrival of ASIC, which means my "worst case assumption" is actually worse than the real worst case.

[molecular]

I have to agree with OP. I don't think an ASIC company failing will have considerable effect on the exchange rate.

As a (potential) miner: if you've spent that fiat back in late summer 2012 then it's already out of your hands. You had USD, now you don't. Your plan was to use the hardware to acquire bitcoins. Now you wont get that hardware. Why the hell would you sell bitcoins now when your plan was to acquire bitcoins.

If you had bitcoins in summer 2012, it's more likely you already sold back then to get fiat for the preorder. And now you're here in 2013 and you lost a bunch of fiat and you still don't have bitcoins. What do you do?

[jl2012]

I have to agree with OP. I don't think an ASIC company failing will have considerable effect on the exchange rate.

As a (potential) miner: if you've spent that fiat back in late summer 2012 then it's already out of your hands. You had USD, now you don't. Your plan was to use the hardware to acquire bitcoins. Now you wont get that hardware. Why the hell would you sell bitcoins now when your plan was to acquire bitcoins.

If you had bitcoins in summer 2012, it's more likely you already sold back then to get fiat for the preorder. And now you're here in 2013 and you lost a bunch of fiat and you still don't have bitcoins. What do you do?

I actually assume those ASIC companies will deliver.

If all of them are scams, it's nothing worse than the BTCST scam. Some people may panic sell but soon they will find that's irrational.

[DobZombie]

This is not a good assumption.

Look what happened when GPU mining ramped up after the price bubble in 2011.....everyone and their dog was selling every BTC not nailed down to recover investment.

The same thing will happen with ASIC, at least at first. 

I hope so!

I'll be there to buy it up at $2 per bitcoin.  Then 6-12 months later after recovering, it'll slowly increase to $27 (probably December 2014, give or take 6 months)

[nebulus]

the most hardcore bitcoin believers, which would be more likely to hoard than dump

I am not going to make a personal attack on you though your ignorance offends me. I'll just say this. The most hardcore bitcoin believers realize that they do not benefit if the coin is not moving.

[jl2012]

the most hardcore bitcoin believers, which would be more likely to hoard than dump

I am not going to make a personal attack on you though your ignorance offends me. I'll just say this. The most hardcore bitcoin believers realize that they do not benefit if the coin is not moving.

Like it or not, storage of wealth is an important function of BTC. People working hard in real life and invest part of their salary on BTC give it value.

[meowmeowbrowncow]

Well $390K plus electrical costs but the larger issue becomes the 2nd round of Avalon, plus BFL first batch, plus any other competitors.  You could see that $390K worst case scenario jumped to something more like $39M over the course of a year.  Remember the first batch is the hard part.  Once production gets ramped up the sky is the limit.  Also it is a sort of sales race as each new miner reduces the value of future sales thus for all competitors the best option is to sell as many units and quickly as possible.

Still I think you may be right I think many miners will hold at least some portion of their coins but I also think you are significantly underestimating the worst case scenario.

Yes I did not count the BFL first batch. What is their total revenue?

When all first batch ASIC are running, the difficulty will skyrocket and the price of subsequent batches have to reduce. $39M is obviously overestimated. With $14/BTC and BTC3600/day, the ROI would be 773 days. However, 773 days is just an average: early ASIC adoptors may have ROI of 30 days, which means latecomers may have >2000 days. And electricity cost has not been considered so the actual ROI for latecomers could be >5000 days. No one will buy an ASIC like this.

I think $3.9M is a more realistic total revenue of all first generation ASICs (including first and all sequent batches). The average ROI would be 77 days. This may extend the BTC3600/day dump to about 100 days assuming the price of BTC is not too low.

However, please don't forget the R&D of first-batch ASIC is supported by free loans from pre-orders. The developers should keep a significant proportion of hashing power because the marginal cost is very low for producing extra units. They are less likely to join the panic selling because they are literally printing BTC for free. If the devs are keeping 50% of the hashing power, their customers will only be able to mint BTC1800/day, which is only 10% of average MtGox volume.

Last but not the least, mine-and-dump activities always exist even before the arrival of ASIC, which means my "worst case assumption" is actually worse than the real worst case.

^ this

If the mining subsidy is such a small percentage of trading volume why is this issue a concern?

[ArticMine]

...

If the mining subsidy is such a small percentage of trading volume why is this issue a concern?

I have the same question.

[thoughtfan]

the most hardcore bitcoin believers, which would be more likely to hoard than dump

I am not going to make a personal attack on you though your ignorance offends me. I'll just say this. The most hardcore bitcoin believers realize that they do not benefit if the coin is not moving.

I won't be offended by your failure to see that an accusation of ignorance is a personal attack and will risk being branded myself by joining jl2012 in disagreeing with you - or at least questioning what you wrote.

I'll start by going miles off topic!  I could loosely be called a Georgist in that I believe hoarding land is harmful to the economy and that measures to disincentivise the purchase of land for investment are a good thing (for instance implementing a policy based on the principle that any raise in the value of land arising out of the actions of any parties other than the owner is not by right the owner's).

Hoarding Bitcoin on the other is not harmful, providing the amount remaining continues to be divisible enough to be practical.  Available land being 1/10th of what it would be other were it not for hoarders has a big impact whereas available Bitcoin being 1/10th of what it would be were it not for hoarders makes no difference as far as I can see.  Does it matter if it's 3 million Bitcoin or 30million Satoshis that are being traded daily if the value (based on labour/loaf of bread etc.) is equivalent?

I also see an implication in what your wrote of a false dichotomy.  Even if 'most hardcore believers' hoarded virtually all their mined Bitcoin it does not mean they are not 'moving coin'.  If we're looking at the small minority, let's say the 'hardest core believers' the likelihood is they're already pretty active a Bitcoin venture or more and if they can afford to and believe that strongly, would be more likely leave whatever they can afford to in Bitcoin to further gain from the raise in Bitcoin value arising partially out of their Bitcoin business activities.

Just some thoughts

I suppose I could write my ha'penneth worth on the potential impact of ASIC on price too...

My guess is what is likely to have the biggest impact is not amounts of Bitcoin being sold or not to pay for hardware but how the fact of ASICs appearing (or not) affects people's confidence in Bitcoin as a project.  There are some who believe ASICs would be a bad thing for Bitcoin whilst others see it as a sign of Bitcoin 'growing up'.  I would guess the biggest impact is likely to be dependent on the consequent actions of those who trade on their respective beliefs.  And seeing as I have no idea how many believe each of those viewpoints let alone how, how much or when they are likely to trade then I can happily say I haven't a clue whether there will be an impact on price

[nebulus]

1. I am not attacking, I'm making an observation about the fact.
2. Hardcore Bitcoiner attracts coin and then releases it into the wild. If you think that hoarding is the way to go you are an idiot. Now, that's a personal attack.

[molecular]

...

If the mining subsidy is such a small percentage of trading volume why is this issue a concern?

I have the same question.

I think the thinking is that while hashing power is in a crazy rise, many more coins than usual will be mined before difficulty adjusts. Rinse, repeat while ASIC manufacturers scale up. Add to that the assumption that these miners are dumpers and you have a dropping exchange rate.

I agree this effect might happen, however I don't think it will be of great magnitude.

[DoomDumas]

number of coin generated by week will still be the same, on average.  Whatever diff, the overall effect of asic will be to bring down power cost.

My conclusion : no noticable effect on the ratio between BTC and other currency.

Remeber, bitcoin are'nt only a currency, it's also the best known (by us) paiement processing system ever.  Nothing compares to Bitcoin in the world of paiement processing...

BTC are well under priced imo.

Only the future will tell !

[molecular]

number of coin generated by week will still be the same, on average. 

This is not true. In a case where the hashing power is constantly rising, the number of coins generated will be higher than 7200 BTC/day.
When hashrate is falling consistently, production will be lower. This is because difficulty doesn't adjust in "realtime", but only every 2 weeks.

[phelix]

I have to agree with OP. I don't think an ASIC company failing will have considerable effect on the exchange rate.

As a (potential) miner: if you've spent that fiat back in late summer 2012 then it's already out of your hands. You had USD, now you don't. Your plan was to use the hardware to acquire bitcoins. Now you wont get that hardware. Why the hell would you sell bitcoins now when your plan was to acquire bitcoins.

If you had bitcoins in summer 2012, it's more likely you already sold back then to get fiat for the preorder. And now you're here in 2013 and you lost a bunch of fiat and you still don't have bitcoins. What do you do?

I actually assume those ASIC companies will deliver.

If all of them are scams, it's nothing worse than the BTCST scam. Some people may panic sell but soon they will find that's irrational.

Scams: bad publicity = publicity = good

Refunds: hardcore bitcoin fans with money in their hands....   buy all them coinzees


If all the ASIC drama will have any short term impact on price it might as well be positive.

[ElectricMucus]

I have to agree with OP. I don't think an ASIC company failing will have considerable effect on the exchange rate.

As a (potential) miner: if you've spent that fiat back in late summer 2012 then it's already out of your hands. You had USD, now you don't. Your plan was to use the hardware to acquire bitcoins. Now you wont get that hardware. Why the hell would you sell bitcoins now when your plan was to acquire bitcoins.

If you had bitcoins in summer 2012, it's more likely you already sold back then to get fiat for the preorder. And now you're here in 2013 and you lost a bunch of fiat and you still don't have bitcoins. What do you do?

I actually assume those ASIC companies will deliver.

If all of them are scams, it's nothing worse than the BTCST scam. Some people may panic sell but soon they will find that's irrational.

Scams: bad publicity = publicity = good

Refunds: hardcore bitcoin fans with money in their hands....   buy all them coinzees


If all the ASIC drama will have any short term impact on price it might as well be positive.

I will come back at you if and when a scam is established consensus like pirate is now. This is far from certain since the avalon guys seem to at least act semi-professional.
If this is happening though I would expect the effect to be quite dramatic, single digits for sure.

[hardcore-fs]

What a load of mathematical bollox.

You forget to take into account something called difficulty........ the network compensates for hashing power.... as it scales up so does difficulty.

Now.... What might work.. is that you buy a load of ASICS then you dos the network taking out your competitors.

[molecular]

What a load of mathematical bollox.

You forget to take into account something called difficulty........ the network compensates for hashing power.... as it scales up so does difficulty.

Now.... What might work.. is that you buy a load of ASICS then you dos the network taking out your competitors.

How do you DOS the network using ASICS? By mining blocks with 0 or 1 transaction in them? If so... how does that harm your "competition"? Competition in what? You make no sense to me, neither mathematically nor otherwise.