Will bitcoin value increase with difficulty?

[karmadog]

?

[Nancarrow]

No, there's no economic reason it should, and I don't believe it historically has. That is, increases in difficulty haven't caused increases in bitcoin value.

The converse is true, and makes sense - increases in bitcoin value eventually cause increases in difficulty, simply because they make mining more profitable, so more people jump on the mining bandwagon, so after a while the algorithm adjusts the difficulty upwards. But I believe difficulty lags price by a month or so. Someone here, maybe organofcorti (?) did a very swish analysis of this.

[threeip]

More mining -> [higher difficulty] -> closer to final coin -> increase in value due to scarcity, but difficulty can fluctuate on the way there.

[Stephen Gornick]

But I believe difficulty lags price by a month or so.

There was a pretty clear pattern (difficulty rises lagged behind price increases by three to eight weeks) when GPUs were the primary technology used.   Currently the rise thanks to ASICs will rise regardless of the direction and rate of change of the exchange rate.
 
But for sure, there's no reason a higher difficulty yields a higher exchange rate unless for some reason there was not enough hashing occurring where the exchange rate was depressed due to concern that it wasn't high enough to provide sufficient protection.   Dan Kaminsky thinks we might be there again simply because a well-funded single supplier of ASICs can easily reach 51%.   Others think he is blowing smoke as who has five or ten million dollars to blow trying to prove his point.   Who knows.

[Paladin69]

It'll increase because of supply and demand.

[threeip]

For more difficulty vs price;
https://docs.google.com/spreadsheet/ccc?key=0AmcTCtjBoRWUdHVRMHpqWUJValI1RlZiaEtCT1RrQmc

[Stephen Gornick]

For more difficulty vs price;

Hey, I recognize that!  

Updated:



 - https://docs.google.com/a/digicoast.com/spreadsheet/oimg?key=0AmcTCtjBoRWUdHVRMHpqWUJValI1RlZiaEtCT1RrQmc&oid=10&zx=ptk1wouqji4q