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Author Topic: Price following difficulty: observations from Bitcoin and Litecoin  (Read 1050 times)
tacotime
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March 04, 2013, 10:38:31 PM
 #1

I see repeated often the mantra of "difficulty follows price, not the other way around."  I've wondered if up to this point that it's become a self-fulfilling prophecy among investors.

Recently with litecoin, we saw the network hash rate and difficulty begin going up days before price ever did:


What about with bitcoin?  Has the the price ever followed the difficulty?  Yes, all throughout 2010, as you can see below in my horrible patchwork chart constructed from a couple of sources (bitcoincharts, which only goes back to Aug 2010, and a blog that had historical rates).


If someone could make neater BTC charts I'd be happy. Smiley  Obviously the scale is fucked up between them, but I think you get the picture.

Code:
XMR: 44GBHzv6ZyQdJkjqZje6KLZ3xSyN1hBSFAnLP6EAqJtCRVzMzZmeXTC2AHKDS9aEDTRKmo6a6o9r9j86pYfhCWDkKjbtcns
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blueadept
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March 04, 2013, 10:49:06 PM
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Hash rate has a dampening effect on the price. As blocks are generated faster, recently mined coins mature faster and get sold. When difficulty goes up, it slows down the pace of block generation, relieves downward pressure from inflation, and allows price to go up faster.

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March 04, 2013, 10:53:43 PM
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That sounds pretty reasonable.

Code:
XMR: 44GBHzv6ZyQdJkjqZje6KLZ3xSyN1hBSFAnLP6EAqJtCRVzMzZmeXTC2AHKDS9aEDTRKmo6a6o9r9j86pYfhCWDkKjbtcns
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