The average cost of a mined coin is in the 20-30 USD range

[EuroTrash]

DISCLAIMER: most of my coins are going to stay in cold storage until November 2013. The rest is my play money and I converted it into fiat, but it is still sitting on the exchanges. I hope I am emotionally detached enough to make sense here.

Hi guys,

I asked this question in the wall observer thread before, yet I don't recall getting an answer (or maybe I skipped through the thread and did not see it). I'd like to know what's your take on the reasoning below.

My assumptions:
1. Fiat value of bitcoin = mining cost + speculation value added.
2. Half of all mining power is ASIC as of today
3. Cost of power worldwide is approximated with average cost in US (0.15 USD/kW)
4. Average hardware breakeven of 3 months (90 days) is reasonable to many.

Using the mining profitability calculator at http://www.bitcoinx.com/profit/
- Leave default values (BFL Single SC) (hmm I know Avalons are less efficient, not sure about Asicminer)
- Find the cost in USD per bitcoin that gives hardware breakeven of 90 days -->12 USD/BTC (this could be even a higher-than-reality estimate as it assumes everyone is paid list price while I think people owning mining farms got discounts).
- Double that value to factor-in all non-ASIC miners: 24 USD/BTC

So even if I were to be wrong by a factor 2 (say 48 USD/BTC), we are in a bear market now and the speculation value is currently approaching zero or negative.
And that's why I sold my play money coins. They are way overvalued - we all know that since January - just the bull inside me had gone delusional and I was expecting the bubble to pop at 440$ so I missed. Of course I have the intention to buy back at the right price - AND GET MORE COINS  

NB1: OK OK I know bitcoin has intrinsic value because of many reasons - that's why I have cold storage.
NB2: Before you hit me with a stick, please remember this is the SPECULATION forum, and that's what I am doing - speculating  
NB3: Oh come on please save me from the xkcd picture "my hobby:extrapolating". Be original with your memes, ffs

[pera]

The real value of a one US dollar bill: 6 cents

The real value of a credit card: 75 cents

The real value of a new bitcoin block: priceless

[Crypt_Current]

DISCLAIMER: most of my coins are going to stay in cold storage until November 2013. The rest is my play money and I converted it into fiat, but it is still sitting on the exchanges. I hope I am emotionally detached enough to make sense here.

Hi guys,

I asked this question in the wall observer thread before, yet I don't recall getting an answer (or maybe I skipped through the thread and did not see it). I'd like to know what's your take on the reasoning below.

My assumptions:
1. Fiat value of bitcoin = mining cost + speculation value added.
2. Half of all mining power is ASIC as of today
3. Cost of power worldwide is approximated with average cost in US (0.15 USD/kW)
4. Average hardware breakeven of 3 months (90 days) is reasonable to many.

Using the mining profitability calculator at http://www.bitcoinx.com/profit/
- Leave default values (BFL Single SC) (hmm I know Avalons are less efficient, not sure about Asicminer)
- Find the cost in USD per bitcoin that gives hardware breakeven of 90 days -->12 USD/BTC (this could be even a higher-than-reality estimate as it assumes everyone is paid list price while I think people owning mining farms got discounts).
- Double that value to factor-in all non-ASIC miners: 24 USD/BTC

So even if I were to be wrong by a factor 2 (say 48 USD/BTC), we are in a bear market now and the speculation value is currently approaching zero or negative.
And that's why I sold my play money coins. They are way overvalued - we all know that since January - just the bull inside me had gone delusional and I was expecting the bubble to pop at 440$ so I missed. Of course I have the intention to buy back at the right price - AND GET MORE COINS  

NB1: OK OK I know bitcoin has intrinsic value because of many reasons - that's why I have cold storage.
NB2: Before you hit me with a stick, please remember this is the SPECULATION forum, and that's what I am doing - speculating  
NB3: Oh come on please save me from the xkcd picture "my hobby:extrapolating". Be original with your memes, ffs

I would argue that all posts on this section of the board, and possibly the entire board, are emotionally motivated.

Other than that, your assumption #2 is a REALLY big assumption
#3 is just totally wrong -- I pay (as does most of the MidWaste) $0.05 / kWH (which actually strengthens your argument)
Another assumption you make is that all miners immediately dump.  This is the exact opposite of what I ideally do as a miner (hoard, but i have some bills payable only in fiat.  very few).
I kinda hope you're right though; I sold a bit at $93 

[UltimateReaper]

The real value of a one US dollar bill: 6 cents

The real value of a credit card: 75 cents

The real value of a new bitcoin block: priceless

+1

[Terk]

My assumptions:
1. Fiat value of bitcoin = mining cost + speculation value added.

I stopped reading here.

$100 bill production cost is $0.096 ⁽¹⁾. Does it mean that 99.9% of dollar value is a “speculation value added”?

You have it wrong. Currency value has nothing to do with production cost of data carrier.

⁽¹⁾ http://money.cnn.com/2011/03/08/news/economy/dollar_cotton_prices/index.htm

[SAQ]

1. Fiat value of bitcoin = mining cost + speculation value added.

I doubt your assumption. Part of the Fiat value of a bitcoin is the amount it costs to produce. Some of this is electricity, specialised hardware, etc, but much more is labour cost. It takes time to find out about bitcoins, do all the research, find out about mining, select the hardware, save to buy the hardware, buy the hardware, look after the hardware and look after the bitcoins.

Most importantly though, what value does the labour of satoshi have for all the time and skill he put on bitcoins?

The full value of a bitcoin is the basic production cost - that is electricity, hardware, etc, and the labour value put into actually creating a bitcoin out of all this basic produce.

[Frozenlock]

People mine bitcoins because they are valuable, not the other way around.

[phorensic]

My assumptions:
1. Fiat value of bitcoin = mining cost + speculation value added.
2. Half of all mining power is ASIC as of today
3. Cost of power worldwide is approximated with average cost in US (0.15 USD/kW)
4. Average hardware breakeven of 3 months (90 days) is reasonable to many.

I think #2 is pretty much impossible at this current time.  A few more months and it may be true.

[usagi]

My assumptions:
1. Fiat value of bitcoin = mining cost + speculation value added.

I stopped reading here.

$100 bill production cost is $0.096 ⁽¹⁾. Does it mean that 99.9% of dollar value is a “speculation value added”?

You also stopped thinking -- "$100 bill production cost is $0.096 ⁽¹⁾. Does it mean that 99.9% of dollar value is a “speculation value added”?" Yes. Yes, it does.

[Terk]

You also stopped thinking -- "$100 bill production cost is $0.096 ⁽¹⁾. Does it mean that 99.9% of dollar value is a “speculation value added”?" Yes. Yes, it does.

Then I will happily buy all your $100 bills for twice their value, that is $0.192 each. I'll take any amount you have. If you refuse to sell, then it's clear that you think that these bills have higher value.

Each currency is worth [what is possible to buy for it] + [speculation value]. It's purchasing power plus speculation value, not production cost plus speculation value.

[notme]

Or difficulty shoots through the roof as ASIC start to ship in mass.

[EuroTrash]

Each currency is worth [what is possible to buy for it] + [speculation value]. It's purchasing power plus speculation value, not production cost plus speculation value.

That is an interesting point. I think it's more correct than my assumption, although I think both statements are equivalent and here's why:

Right now [what is possible to buy for it] is priced in fiat. No one - really - prices their stuff in bitcoins. We all hope this will eventually change, yet it will take at the very least few years to change. For now bitcoins are somehow like gold - vouchers for fiat cash. Hence a bitcoin's "intrinsic value" measured in fiat is how much fiat it did cost to produce.

But - SAQ made a valid point too. There is a "human cost" factor which I ignored. In fact I used many man-hours of my time getting informed, building my first rig as well as learning from expensive mistakes. That has to be priced in somehow. Although the "human cost" per bitcoin is likely to decrease quickly. With higher adoption rate come more reliable exchanges which are easier to deal with as well as more user-friendly hardware and software.