Concerned about the recent BTC price rise.

[newtenberg]

The number of bitcoins sold over the last 30 days (according to bitcoincharts.com) was 1,885,000, while the number of bitcoins mined over the last 30 days was 108,000. So, the maximum possible contribution of supply by the block reward is less than 6%, and the actual contribution is probably much less than that. That is how I support my claim that a change in the reward has only a small effect on supply, if any.

You are misunderstanding the whole situation. Real coins and trade volume are absolutely different animals. For example, yesterday I started with 100 bitcoins and after selling and rebuying them 5 times, I finished with about 103 bitcoins.

Real coins transferred = 103 - 100 = 3 bitcoins

Trade volume generated = 5 * 2 * 100 = 1000 bitcoins

The latest rally started two weeks ago on January 8. Prior to that, it was flat for nearly a month. How does this coincide with the block reward halving two months ago.

The adjustment is not instantaneous, it will take several months (including many corrections).

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[dree12]

The number of bitcoins sold over the last 30 days (according to bitcoincharts.com) was 1,885,000, while the number of bitcoins mined over the last 30 days was 108,000. So, the maximum possible contribution of supply by the block reward is less than 6%, and the actual contribution is probably much less than that. That is how I support my claim that a change in the reward has only a small effect on supply, if any.

You are misunderstanding the whole situation. Real coins and trade volume are absolutely different animals. For example, yesterday I started with 100 bitcoins and after selling and rebuying them 5 times, I finished with about 103 bitcoins.

Real coins transferred = 103 - 100 = 3 bitcoins

Trade volume generated = 5 * 2 * 100 = 1000 bitcoins

The latest rally started two weeks ago on January 8. Prior to that, it was flat for nearly a month. How does this coincide with the block reward halving two months ago.

The adjustment is not instantaneous, it will take several months (including many corrections).

If miner supply was turned to 0.25 BTC today, would Bitcoin reach 1700 USD in several months?

Block halving has a very negligible effect on Bitcoin prices because the supply change is miniscule. Difficulty's effect on price stems from how attractive mining is, not from how much money is injected into the supply.

[newtenberg]

If miner supply was turned to 0.25 BTC today, would Bitcoin reach 1700 USD in several months?

Hyperbole. Your counterexample is a fallacy by design.

[constitution]

I get my paycheck tomorrow.. AND PRICES ARE ALMOST 18$ A BTC!!!! FML.

[dree12]

If miner supply was turned to 0.25 BTC today, would Bitcoin reach 1700 USD in several months?

Hyperbole. Your counterexample is a fallacy by design.

It is not fallacious at all. It's common sense. I modelled the economics of the block reward months before it happened. I concluded that each day, less than 1% of trade is from that day's mined coins—a value unlikely to increase after the block reward change. Now that this value is closer to 0.5%, price changes are no longer attributable to supply through mining.

Because of the way Bitcoin is designed, the supply entering the system is known. In effect, it is a combination of inflation and demurrage: inflation is known to a reasonable extent, and demurrage (through accidental coin loss) is inconstant, volatile, and unpredictable. These are the only influences affecting the money supply as a whole.

Although demurrage is predicted to become more important in Bitcoin's future, at the moment it is likely second fiddle to inflation. But inflation can be predicted to a reasonable accuracy even through ignoring mining altogether. So we can model mining approximately by untying it to inflation, and as an industry similar to any other. This is no more a fallacy than modelling the motion of the Earth relative to the Sun as an ellipse—sure, the Moon affects it, but not significantly enough to make our model unacceptably inaccurate.

Once we have established this model, mining becomes an industry like any other. Money is given to successful miners, and they earn a profit. This is no different from those successful in retail or in gambling.

A common fallacy repeated on these forums is that difficulty drives price. It does, but not in an intuitive way. With this economic model, we can see that mining is an industry like any other. If the cost of earning the money decreases (difficulty decreases), profits increase. And with increased profits comes decreased value—a result obtainable regardless of economic theory. The same is true when difficulty increases: with decreased profits comes increased price.

But we already know that mining is just an industry like any other. So clearly, mining alone is not going to make that large an impact. Difficulty doesn't really affect price that much because mining isn't that big of an industry. SatoshiDice alone is a bigger part of the economy than all miners at this stage. Price doesn't increase significantly because of difficulty.

So how do I determine that value is not affected by the block reward? Simple. Consider a situation in which the difficulty doubles overnight due to a bug in the protocol. What will happen? This is equivalent to a halving of the block reward, after all. Will price skyrocket? In a few months, maybe? No. Clearly, the only impact on the price is that miner profits are down and therefore there is a certain degree of price increase.

If miners were 100% of the economy, then only miners would be selling BTC. There is a temporary rift in the supply as the majority of miners run into negative profit. The price should increase significantly as the supply is severely crippled. This effect should be instant or at least rapid, as everyone is aware of this.

But miners are not 100% of the economy. They are 20% at most. Gambling, retail, service, and yes, even speculation are all parts of the economy. Speculation, gambling, retail, and service make up the other 80%. Supply, at most, can only be crippled 20%. This means that even if the block reward and transaction fees disappeared overnight, the price should not reasonably appreciate more than 25%.

Conclusion: Our current appreciation cannot be explained on the block halving.

[n8rwJeTt8TrrLKPa55eU]

If miners were 100% of the economy, then only miners would be selling BTC. There is a temporary rift in the supply as the majority of miners run into negative profit. The price should increase significantly as the supply is severely crippled. This effect should be instant or at least rapid, as everyone is aware of this.

But miners are not 100% of the economy. They are 20% at most. Gambling, retail, service, and yes, even speculation are all parts of the economy. Speculation, gambling, retail, and service make up the other 80%. Supply, at most, can only be crippled 20%. This means that even if the block reward and transaction fees disappeared overnight, the price should not reasonably appreciate more than 25%.

Conclusion: Our current appreciation cannot be explained on the block halving.

I agree completely with your conclusion, although I think the analysis is even simpler and can be copied verbatim from decades of research into the price dynamics of the conceptual "mining" model on which Bitcoin was based: gold.

New supply (i.e. miner production) does not meaningfully influence the gold price because it is dwarfed by the quantity of pre-existing already mined gold.  

Similarly, at this point, with BTC.  The quantity of new coins that the miners can throw onto (or withhold from) the market cannot make any kind of meaningful dent whatsoever on the MtGox orderbook.  We are way past the era when the miner supply was a significant portion of the total BTC stock.  The majority of coins being traded do not come from miners.  They come from existing holders of coins.

It is a common (but often seen) fallacy to speculate that a mine strike in South Africa will cause the price of gold to rise.  For the exact same reasons, it is an identical fallacy to think that reduced miner supply will cause the price of BTC to rise.  The reasons why BTC has risen are due to huge new demand from buyers + unmatched supply from existing holders.  Miner supply is a tiny factor that can be mostly ignored.

Suggested reading, just replace the word "gold" by "bitcoin":

Why changes in gold production don't matter
http://www.321gold.com/editorials/saville/saville111009.html

[xxjs]

Suggested reading, just replace the word "gold" by "bitcoin":

Why changes in gold production don't matter
http://www.321gold.com/editorials/saville/saville111009.html

That article was good, i co-recommend it.

[Luno]

Suggested reading, just replace the word "gold" by "bitcoin":

Why changes in gold production don't matter
http://www.321gold.com/editorials/saville/saville111009.html

That article was good, i co-recommend it.

One point: A miner is normally considered here as someone who sells all his coins when mined or when he needs to pay for electricity.

However, Many miners are also traders, and having less mined coins makes the miner more likely to stick to his coins as he cannot recoup a short by mining a week more!
So his trading pattern changes and he is more often long. The halving of the amount of mined coins might not in naked figures explain the rise, but the anticipation of scarcity makes all speculate in a rise.

It's like when there is a fire in an off shore oil rig. The rig produced 0.4% of world oil production, but when it burns, oil prices rise 8%

In gold mining, most gold is mined by poor people an the brink of starvation, they don't speculate in price. Neither do the big mining operation as they have high cost. They both sell to the nearest gold refinery which pretty much manipulate the price as much as it can. Gold miners are not selling at market price!

When you go to your local scrappy to sell some copper you get 65% of yesterdays market price as he has costs and is exposed to a risk of a drop in price before he has a container full to ship to the smelter. The smelter also pays the scrappy less as there are losses from impurities and he also is exposed to the same market risks. When copper is appreciating, you can usually get a slightly better price than 65%. So real gold or copper is not as liquid as Bitcoin from the miner or scavengers perspective and their effect on the price is less than the effect from BTC miners.

[BobbyJo]

There have been several recent articles in magazines etc which have talked about Bitcoin.  Perhaps this is increasing interest in the project and hence, driving up the price.  The economy is still pretty small, so relatively small events can have a big effect on price.

[Bitcoinpro]

I'm as happy that my holdings are rising as the next guy, but I admit that I cannot see the cause of it.  This kind of advance is not unprecedented within the Bitcoin economy, but the last time we were in this kind of multiple week advance it turned out to be a hype induced bubble, not the result of fundamental increases in the size of the BTC economy.  Anyone know what I'm missing?

this type of fluctuation is normal and donst nessisarly represent weakness watsoeva

[Bitcoinpro]

id harldy call the current price a bubble   

[Akka]

id harldy call the current price a bubble   

I'm still not sure if it's because of a rise in demand, or just because of an expectation of rise in demand.

If its the latter and the expected demand doesn't trigger than it will have been a bubble. But that seems unlikely at the moment.

[ThickAsThieves]

id harldy call the current price a bubble   

I'm still not sure if it's because of a rise in demand, or just because of an expectation of rise in demand.

If its the latter and the expected demand doesn't trigger than it will have been a bubble. But that seems unlikely at the moment.

It's both, hoarding by old & new users. Lots of support, for now.

[paraipan]

id harldy call the current price a bubble   

I'm still not sure if it's because of a rise in demand, or just because of an expectation of rise in demand.

If its the latter and the expected demand doesn't trigger than it will have been a bubble. But that seems unlikely at the moment.

It's both, hoarding by old & new users. Lots of support, for now.

Enjoy the ride, hope you keep your arms and legs inside the vehicle at all times 

[johnyj]

It's driven by speculation, any serious speculator will never miss this vehicle, this is just the beginning

5 hedge funds, each push the price to a target area (like 4x) and dump it to the next one, they keep buying and selling with profit, same game wallstreet guys have been playing for decades

Actually I think the biggest enemy of BTC are these players with huge amount of fiat capital, although BTC was designed to be a currency free of central banks manipulation, it still could be manipulated by the powerfull players in the market

[crazy_rabbit]

It's driven by speculation, any serious speculator will never miss this vehicle, this is just the beginning

5 hedge funds, each push the price to a target area (like 4x) and dump it to the next one, they keep buying and selling with profit, same game wallstreet guys have been playing for decades

Actually I think the biggest enemy of BTC are these players with huge amount of fiat capital, although BTC was designed to be a currency free of central banks manipulation, it still could be manipulated by the powerfull players in the market

+1

I think there is a real risk of people with deep deep FIAT reserves realizing the publicity of Bitcoin has given them a perfect vehicle through which to pump money from inexperienced speculators. The higher the price, the more press coverage, the more ordinary people come and put 1-2K USD into it, the more they dump and buy it back cheaper.

[DobZombie]

The halving of the mining reward is the main cause of this rally.

I called that 3 months ago

also

WE HIT $20 per BTC Mother-Falkners!

[Prattler]

It's driven by speculation, any serious speculator will never miss this vehicle, this is just the beginning

5 hedge funds, each push the price to a target area (like 4x) and dump it to the next one, they keep buying and selling with profit, same game wallstreet guys have been playing for decades

Actually I think the biggest enemy of BTC are these players with huge amount of fiat capital, although BTC was designed to be a currency free of central banks manipulation, it still could be manipulated by the powerfull players in the market

I think there is a real risk of people with deep deep FIAT reserves realizing the publicity of Bitcoin has given them a perfect vehicle through which to pump money from inexperienced speculators. The higher the price, the more press coverage, the more ordinary people come and put 1-2K USD into it, the more they dump and buy it back cheaper.

These are very real concerns, however as people rich in FIAT will try to destabilize the price of bitcoin, people rich in bitcoin could act to stabilize it. Sell when the price is rising too quickly, sit on the dollars and buy back bitcoins when the price is crashing. I think it's really a moment when we will see if the community is serious about bitcoin or just a bunch of greedy speculators.

No hedge fund can break bitcoin if there are enough early adopters that are willing to stand up to them.

If you care for bitcoin, you should sell when prise is rising and buy when price is falling!

[benjamindees]

No hedge fund can break bitcoin if there are enough early adopters that are willing to stand up to them.

This is very shortsighted thinking.  Central banks print at a rate of 2-3% per year.  After a hundred years, they can break anything.  They can break the entire economy.

You won't even notice until it's too late.

If you care for bitcoin, you should sell when prise is rising and buy when price is falling!

No, if you care for Bitcoin, you should learn to play the long game as well as they do.

[crazy_rabbit]

It's driven by speculation, any serious speculator will never miss this vehicle, this is just the beginning

5 hedge funds, each push the price to a target area (like 4x) and dump it to the next one, they keep buying and selling with profit, same game wallstreet guys have been playing for decades

Actually I think the biggest enemy of BTC are these players with huge amount of fiat capital, although BTC was designed to be a currency free of central banks manipulation, it still could be manipulated by the powerfull players in the market

I think there is a real risk of people with deep deep FIAT reserves realizing the publicity of Bitcoin has given them a perfect vehicle through which to pump money from inexperienced speculators. The higher the price, the more press coverage, the more ordinary people come and put 1-2K USD into it, the more they dump and buy it back cheaper.

These are very real concerns, however as people rich in FIAT will try to destabilize the price of bitcoin, people rich in bitcoin could act to stabilize it. Sell when the price is rising too quickly, sit on the dollars and buy back bitcoins when the price is crashing. I think it's really a moment when we will see if the community is serious about bitcoin or just a bunch of greedy speculators.

No hedge fund can break bitcoin if there are enough early adopters that are willing to stand up to them.

If you care for bitcoin, you should sell when prise is rising and buy when price is falling!

Unless of course their game is to slowly buy up ALL the BTC. Remember it's divisible to 8 decimal places. Why not have some hedge fund buy up now a good portion of a future world currency? It would be like the cartel on the diamond market. Most diamonds are bought up just to be stored in vaults and thus protect the price level.

Lets say some fund decided they wanted half of all BTC, they slowely buy it all up. We don't notice except our glee at a rising price. The rising price raises BTC's value, and we start dealing in mili BTC like nothing's happened. Except something has happened, and this funds control over so many BTC means that they can artificially inflate the price of BTC, and when they sell it, demand ever higher amounts of FIAT. It *could* (read COULD!!!!) be a perfect way to suck money out of those afraid of central banks.