$55 - really? Really? Really?

[Lore]

For the millionth time in these forums. The price of BTC has absolutely nothing to do with the price of mining. The difficulty will adjust towards making mining a break-even venture. The difficulty rate lags the price due to the time it takes to bring miners on and offline. The price is solely determined by supply and demand.

You contradicted yourself in your own post... Let me help you out...  In the PAST, the value of BTC has moved towards the point of making mining a break even venture as the difficulty level adjusts.  Like every broker will tell you though, past performance is no guarantee future results.  

ASIC mining hardware is a major disruption in the mining community.  It is vastly out performing widely available, consumer-level hardware.  It is very expensive and only useful to mine bitcoins. It is currently concentrating the new found wealth in the hands of very few people.  The expense and single, functioned nature of the mining equipment is quite unique in bitcoin history.  It may take quite some time for this situation to stabilize.

While I can agree with your final "supply and demand" statement, those concepts trivialize all the chaos and complexity underneath to such a degree it's pathetic. Why not just take the last step and say the price is solely determined by economics?

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[mestar]

For the millionth time in these forums. The price of BTC has absolutely nothing to do with the price of mining. The difficulty will adjust towards making mining a break-even venture. The difficulty rate lags the price due to the time it takes to bring miners on and offline. The price is solely determined by supply and demand.

The higher price of bitcoin brings in more miners, until the least profitable ones are at about zero profitability.   

This means more electricity is used.  In other words, total cost of mining goes up.  There is a lag in this process, as you can't buy hardware in a minute.

Once more miners join, they all have to pay for their running costs in currencies other than bitcoin.  That means they must sell their BTC on the exchanges.  This creates a selling pressure on the exchanges, and keeps the bitcoin price in check.

So, yes,  the price of BTC has absolutely everything to do with the (total) price of mining. 

[mestar]

Do you want a healthy price for bitcoins? Then do not sell, simple as that.

My guess at the Nash equilibrium in this speculation zero sum game would be this:

Try to get everyone else not to sell, then sell them yourself first.  Telling others to "hold" while you are selling is optional.

[mestar]

A non fungible commodity like gold or oil cannot drop below their price of production.

Sure it can.

While the "endowment effect" is certainly real, it is not a law.  You might not want to sell below costs, but others will, and the price can go down.   Especially in markets where you have many producers (and bitcoin mining is a perfect example of that), and their costs are different.   What might be your cost of production, might be twice expensive as others can produce them, and they will certainly sell bellow your costs.

It might also work if you are a monopolist, and you have the power not to sell below costs.  And again, this is definitely not the case in the bitcoin mining market.

So, yes, bitcoin can go to $0.50, no problem.

[mestar]

Mining does not set the price.

Well, you are wrong.

Mining does set the price, but in an indirect way.

Mining costs are the true costs of running the bitcoin network.  Somebody must pay those costs.  It turns out that when miners sell their bitcoins on the exchanges to cover the costs,  those that bought them are the ones paying for the costs of running the bitcoin network.

Higher bitcoin price will bring in more miners.  More miners, more running costs.  Those costs will end up on the sell side on the exchange.  This pushes the price down.   

There might be a lag in all those cause-effect relationships, like miners holding to sell them later.  But this will not change the pressure, it will just postpone it, and the price will swing more wildly,  just as we see in reality.

So, there you go, mining does influence the price.  The higher the price, the more that mining pushes it down.

The big question is, at what point do we reach an equilibrium?

[mestar]

It's worth alot more than $55 per coin, simple as. It's value as an exchange coin for the illegal drugs market alone makes it worth 10x that.

Post your math.

I caluclate that if SR is the only user, and they have $5 million monthly volume, and if of that volume, you take 2% as "value created" because of bitcoin,  the price of bitcoin should be $1.

[mestar]

It doesn't set the price, but there is going to be serious problems if it stays lower than the cost to produce them.
That's a big incentive for miners to NOT sell them lower than the cost.

There are no sirious problems with that situation.  Some miners simply stop mining.  No problems in bitcoin network at all.

I don't see how this is a big incentive for miners.  Are you thinking of the "endowment effect"?  If they think the price will rise in the future, fine, miners will hold them.  If they see the price as falling in the future, they will sell, even if way way bellow their costs.  Miners are just human after all.

[ex-trader]

Mining does not set the price.

99% right.

The price is almost entirely determined by what the holders of the 11m coins do and how any potential buyers feel about the current price/value.

The views of the holders of the few thousands coins mined daily has only a very a small impact in that they might all be partial natural sellers, although I suspect most are natural hoarders.

[minerva]

Mining does not set the price.

Well, you are wrong.

Mining does set the price, but in an indirect way.

Mining costs are the true costs of running the bitcoin network.  Somebody must pay those costs.  It turns out that when miners sell their bitcoins on the exchanges to cover the costs,  those that bought them are the ones paying for the costs of running the bitcoin network.

Higher bitcoin price will bring in more miners.  More miners, more running costs.  Those costs will end up on the sell side on the exchange.  This pushes the price down.   

There might be a lag in all those cause-effect relationships, like miners holding to sell them later.  But this will not change the pressure, it will just postpone it, and the price will swing more wildly,  just as we see in reality.

So, there you go, mining does influence the price.  The higher the price, the more that mining pushes it down.

The big question is, at what point do we reach an equilibrium?

There will be no equilibrium as people continually enter into the Bitcoin economy.

Besides, even if miners are running a deficit for the bitcoins they are currently mining, they could wait until bitcoin prices increase (they are guaranteed to, they are deflationary as you've heard) to sell their coins. Besides, the operating costs for any mining rig will be less then the purchasing costs of the rig.

[mestar]

The price is almost entirely determined by what the holders of the 11m coins do and how any potential buyers feel about the current price/value.

And of those 11m coins, the price if only determined by those that trade them on the exchange.  Those that simply hold have no effect on price at all.

The views of the holders of the few thousands coins mined daily has only a very a small impact in that they might all be partial natural sellers, although I suspect most are natural hoarders.

In an up market everyone is a hoarder.  Except those that must pay their running costs.

In a downward market, everyone becomes a seller. 

As for the 3600 coins having a small impact,  speculators will come and go, and those 3600 will be there every day for the next 3-4 years.  A large part of those 3600 will be sold, simply because miners have running costs they must pay in money other than bitcoins.

[mestar]

There will be no equilibrium as people continually enter into the Bitcoin economy.

By that logic, any pyramid scheme can go on forever.

Besides, even if miners are running a deficit for the bitcoins they are currently mining, they could wait until bitcoin prices increase (they are guaranteed to, they are deflationary as you've heard) to sell their coins.

So, you agree that they have to sell them eventually.  Postponing it doesn't change the basic facts, only makes the price swings worse.   (Just as we are seeing now.)

Take a look at the price from the bubble in 2011 to the end of the year.  Explain that price action.

Besides, the operating costs for any mining rig will be less then the purchasing costs of the rig.

Purchasing costs of hardware don't enter the picture after you have it.  You keep your hardware on until your running costs are more than the value of the bitcoins generated.   So, there will always be (a sizable) part of miners that are running close to a very small or zero profitability. 

[wopwop]

mestar is on a roll! bitcoin fanatics getting buuuurned

[InspiredEye]

Someone is dumping hard to drive price down in order to buy a lot at low price

The electricity cost for GPU miner is the fundamental factor for bitcoin price, currently 1G hash gives 0.06 bitcoin per day, using $3 electricity, that is about 50 USD for 1 bitcoin

I have 3.2GH mining @ .18BTC per 24hrs @ .12kwh.My bill is approx $150 more while mining,so $150/6.3BTC per month=$23.80 per BTC.Thats what its worth to me 

Thanks, that's an interesting way to look at it. 

[manfred]

I have 3.2GH mining @ .18BTC per 24hrs @ .12kwh.My bill is approx $150 more while mining,so $150/6.3BTC per month=$23.80 per BTC.Thats what its worth to me

Someone living in an area where the electric price is very low, they still make a profit selling at $ 5
Energie = power

[lemonginger]

For the millionth time in these forums. The price of BTC has absolutely nothing to do with the price of mining. The difficulty will adjust towards making mining a break-even venture. The difficulty rate lags the price due to the time it takes to bring miners on and offline. The price is solely determined by supply and demand.

You contradicted yourself in your own post... Let me help you out...  In the PAST, the value of BTC has moved towards the point of making mining a break even venture as the difficulty level adjusts.  Like every broker will tell you though, past performance is no guarantee future results.  

Let me make this simpler for you, since you seem to be unable to understand basic things about how BTC works.

Let's say tomorrow the price of bitcoin falls to $10. Mining will be unprofitable at the current difficulty rate.Miners will come offline, the difficulty rate will fall, and it will tend towards making mining profitable for those with cheap power and/or large economies of scale. Overall, with a lag, the ROI of mining will tend towards the same point.

Let's say tomorrow a new type of processor is discovered that violates Moore's Law and makes mining super cheap. More miners come online. The difficulty rises, tends to make mining reach the same break even point, but has little-to-effect on the price/. Overall, with a lag, the ROI of mining will tend towards the same point.

To the extent that miners are "forced" to sell for fiat to buy new equipment or that they "sell for fiat" when mining is profitable but "hold" when it is unprofitable, sure mining effects the the supply and demand for bitcoin, but the overall supply and demand pretty much makes what miners are doing irrelevant, as miners are not some homogenous group doing the same thing anyway. Some are holding bitcoin, some trade for fiat daily, etc with.

Mining prices don't even affect the price of precious metals all that much, and there's no automatically adjusting difficulty rate for getting gold out of the ground. Bitcoins are extracted at a predictablew rate, no matter how many resources are thrown at it. Because of the difficulty algorithm, mining cost is simply a lagging indicator of price, not a driver of it.

[Adrian-x]

I have 3.2GH mining @ .18BTC per 24hrs @ .12kwh.My bill is approx $150 more while mining,so $150/6.3BTC per month=$23.80 per BTC.Thats what its worth to me

Someone living in area of very low electric price still making profit selling at $5
Energie = power

I am still GPU mining, at the current difficulty and electricity consumption I will be profitable at anything over $17.76.
It so happens that the electricity is part of my rent, so it is 100% profit. Should I move my rigs to home I will not run them unless the price is $17.76 or higher in summer and in winter the extra heat offsets my heating cost and I would be profitable at anything above $10.

[johnyj]

For the millionth time in these forums. The price of BTC has absolutely nothing to do with the price of mining. The difficulty will adjust towards making mining a break-even venture. The difficulty rate lags the price due to the time it takes to bring miners on and offline. The price is solely determined by supply and demand.

Not all bitcoin users are speculators, there are many bitcoin supporters, they don't care too much about the exchange price of bitcoin, they just want to get more coin. They can either mine or buy the coins. whichever is cheaper

At $200+, even the GPU mining do not need to care about the electricity, so these people will just buy more GPU to mine the coin, the number of these people are huge, so if they don't buy coins, the exchange rate will lose support of these people

When the exchange price has falled below the normal GPU miners's electricity cost, they might still mine at a loss, but there is always an exchange risk that price will never recover for a long time, and they have to pay the electricity, so many of them will stop the rig and buy the coins directly, and that will support the exchange price

Of course when the coin is in a fast adoption phase, the demand could drive price up, but I suppose most of the people who are really interested in bitcoin have both computer and economy knowledge, so mining or buying will always be their consideration, and works as a rough guideline for the base price of bitcoin

[BluesBrother]

Do view my thread on the theory whether BC are a pyramid-ponzi or not.
But the USD is certainly not. It is constantly printed and is directly correlating in the best case scenario to increase in economic output.
BC mining is not remotely correlating to any real world event and are mined out of thin air.

But if this service becomes the "only viable" service in its market say by gaining monopoly status (60% market share) in the anon-currency world and maintaining it then as a service it can be valued at this price or even higher.

That's the only question. Those investing in a "deflationary currency" are greedy individuals (we all got it a bit) trying to make money out of no produce and are thus contributing to a bubble which the actual users do not want.
Frankly all you folk into this and gold and silver and so on aren't doing anyone any good.
You're basically storing up funds instead of investing them back into the economy more or less hoping that everything else goes to hell.
You're hurting america

The difference is that since BC depends on commerce things aren't quite the same.

[johnyj]

Do view my thread on the theory whether BC are a pyramid-ponzi or not.
But the USD is certainly not. It is constantly printed and is directly correlating in the best case scenario to increase in economic output.
BC mining is not remotely correlating to any real world event and are mined out of thin air.

But if this service becomes the "only viable" service in its market say by gaining monopoly status (60% market share) in the anon-currency world and maintaining it then as a service it can be valued at this price or even higher.

That's the only question. Those investing in a "deflationary currency" are greedy individuals (we all got it a bit) trying to make money out of no produce and are thus contributing to a bubble which the actual users do not want.
Frankly all you folk into this and gold and silver and so on aren't doing anyone any good.
You're basically storing up funds instead of investing them back into the economy more or less hoping that everything else goes to hell.
You're hurting america

The difference is that since BC depends on commerce things aren't quite the same.

USD is printed without any effort, so essentially it worth nothing when the gold backing has been removed since 1971. Before, you can always exchange USD for gold at central bank so it has value. This is a critical point that most people do not understand or don't know

Since then, the value of USD is purely decided by people's consensus (like: if everyone believe it worth a cup of milk, then it worth a cup of milk), this also showed how a consensus can hold value for something for decades, even the fundamental support of value is removed

But the biggest question is: If that USD cost nothing to produce, how come central bank could use that nothing to buy something that has real value This against any trading/bartering principle in the world. Again, the consensus (people's trust) are utilized by central bank

BTC on the other hand, is created by using modern processor and electricity, and that cost basically decided its base value, so each BTC worth something from the beginning. This is a fundamental difference

It's just BTC is new and people have not reached a consensus about how much a BTC should worth, it takes time to do this price discovery

In some people's opinion, you should totally forget about fiat scam and start to trade real goods and services for bitcoin, in this way you give it a value

BTW, it is not always a good thing to invest, all the investing is just a waste of resource when effective demand is low

[zvs]

Do view my thread on the theory whether BC are a pyramid-ponzi or not.
But the USD is certainly not. It is constantly printed and is directly correlating in the best case scenario to increase in economic output.
BC mining is not remotely correlating to any real world event and are mined out of thin air.

But if this service becomes the "only viable" service in its market say by gaining monopoly status (60% market share) in the anon-currency world and maintaining it then as a service it can be valued at this price or even higher.

That's the only question. Those investing in a "deflationary currency" are greedy individuals (we all got it a bit) trying to make money out of no produce and are thus contributing to a bubble which the actual users do not want.
Frankly all you folk into this and gold and silver and so on aren't doing anyone any good.
You're basically storing up funds instead of investing them back into the economy more or less hoping that everything else goes to hell.
You're hurting america

The difference is that since BC depends on commerce things aren't quite the same.

USD is printed without any effort, so essentially it worth nothing when the gold backing has been removed since 1971. Before, you can always exchange USD for gold at central bank so it has value. This is a critical point that most people do not understand or don't know

Since then, the value of USD is purely decided by people's consensus (like: if everyone believe it worth a cup of milk, then it worth a cup of milk), this also showed how a consensus can hold value for something for decades, even the fundamental support of value is removed

But the biggest question is: If that USD cost nothing to produce, how come central bank could use that nothing to buy something that has real value This against any trading/bartering principle in the world. Again, the consensus (people's trust) are utilized by central bank

BTC on the other hand, is created by using modern processor and electricity, and that cost basically decided its base value, so each BTC worth something from the beginning. This is a fundamental difference

It's just BTC is new and people have not reached a consensus about how much a BTC should worth, it takes time to do this price discovery

In some people's opinion, you should totally forget about fiat scam and start to trade real goods and services for bitcoin, in this way you give it a value

BTW, it is not always a good thing to invest, all the investing is just a waste of resource when effective demand is low

lol, USD is printed w/ plenty of effort to thwart counterfeiting.   let's just bust out the monopoly money, right?

the value of the USD decided by people's consensus...   sounds like some sort of utopian community.

how come central bank could use that nothing to buy something that has real value This against any trading/bartering principle in the world.

luckily we don't live in the stone age anymore..  most of us, anyway.  i suppose some people still trade camels for harems and what not