The Fallacy of Mining Cost and Bitcoin Price

[murasha]

There was a huge diffuculty update last time, its not easy to mine bitcoins now.
So why peaople sell them for a $15 at tradehill?

[1714025609]

1714025609

[1714025609]

1714025609

[1714025609]

1714025609

[kokjo]

There was a huge diffuculty update last time, its not easy to mine bitcoins now.
So why peaople sell them for a $15 at tradehill?

mining is not everything, NOOB!

[murasha]

There was a huge diffuculty update last time, its not easy to mine bitcoins now.
So why peaople sell them for a $15 at tradehill?

mining is not everything, NOOB!

Please, re-check my question.

[kokjo]

There was a huge diffuculty update last time, its not easy to mine bitcoins now.
So why peaople sell them for a $15 at tradehill?

mining is not everything, NOOB!

Please, re-check my question.

you are saying: it harder to mine, therefor btc price should also rise, with the difficulty.
i am just saying: NOOB! it is not about mining.

[Jack of Diamonds]

i am just saying: NOOB!

Are you a really little kid? Just saying

Anyways, to OP: Price is not dictated by difficulty but by demand.

While in the past price has risen in a linear curve with difficulty, apparently a ton of old miners have loaded off their early bitcoins onto the market & keep the price low.

Speculators don't care about difficulty of mining. They only care about how many BTC are out there on the open market. And there seem to be plenty even if current miners didn't sell anything for a month.

Convince more people to use bitcoins & drive up demand, or convince old holders not to sell their coins at bargains like they did in mass at $4/btc a month or few back.

Either way works but both are pretty hard to accomplish.

[murasha]

kokjo, yes, you said just wat you said.
But I am not telling that difficulty is only price reason, but difficulty is a strong reason you know.
So something like "you are noob there are other reasons" definitely not an answer for my question.
Thats why I  hope that you will re-chek my question and we will talk about reasons that keeps rate at $15-17 usd per coin.

[killer2021]

Its supply and demand.

People selling off because of fear in the markets. Give it a week or two. Now is good time to buy, not sell.

Hold on to your btc for a while all the fear settles down.

[bitcoinTrader]

Its supply and demand.

People selling off because of fear in the markets. Give it a week or two. Now is good time to buy, not sell.

Hold on to your btc for a while all the fear settles down.

How about shorting (i.e seling and rebuying) rather than buying straight away?

Might be risky though 

[murasha]

apparently a ton of old miners have loaded off their early bitcoins onto the market & keep the price low.

Seems so.
I wish I could check depth of market history for last month.
Also, with mtgox problems maybe alot of bitcoins was stolen - from mtgox accounts, maybe from pools with hacked mtgox passwords, etc.
So maybe those al bitcoins for sale now.
Anywhay, shold we wat for a rise soon looking back at these events?

[kokjo]

kokjo, yes, you said just wat you said.
But I am not telling that difficulty is only price reason, but difficulty is a strong reason you know.
So something like "you are noob there are other reasons" definitely not an answer for my question.
Thats why I  hope that you will re-chek my question and we will talk about reasons that keeps rate at $15-17 usd per coin.

okey then a more serriose answer: mtgox has crashed. people are nervouse, and they dont know to sell or buy.
when trading resumes on mtgox, we will maybe see many panic trades, the price will go up and down, for a few days, who knows.
then when people has chilled a little off, the price will maybe rise again.

it is more the difficulty that follows the price, and not the other way around.
becuase when prices goes up more people will mine, and therefor the difficulty will rise.
and if the price goes down the difficulty will fall, because it will not be profitable for the miners to continue.

there is also many merchants who takes btc as payment.
and the speculators also have something to say about the price.
"panic" noobs who just wants bitcoins, who did buy at $36, when anyone else was selling.
all this factors has alot more to say about the price then mining.

it is not about mining, it about the economy.
if you think price=difficulty, then you are a noob.

sorry for calling you a noob before.

[Jack of Diamonds]

Anywhay, shold we wat for a rise soon looking back at these events?

Maybe in a few months, but not in the recent future.

Even before the crash on Mt. Gox, there were a ton of dimwits panicking and selling a massive amount of BTC even at $10 just because it notched down a dollar during the weekend
(check the price history if you don't believe me).

I.e. hysterical speculators with tons of bitcoins who made idiotic market moves by getting rid of their BTC holdings at any price possible.

How do you educate inexperienced beginners about market fluctuations? You don't. People have to learn it themselves.
Speculators will finally understand that bitcoin is not going to crash or skyrocket just because the value moves $0.5 up or down during the course of a normal day.

[JoelKatz]

There was a huge diffuculty update last time, its not easy to mine bitcoins now.
So why peaople sell them for a $15 at tradehill?

The supply is the same. The demand is the same. Why should the price change?

[Cluster2k]

BTC's price is not increasing as speculators have absolutely no care about how much it costs to buy hardware or pay for electricity and cooling.  The market is already very well supplied with over 6.6 million BTCs.  More than enough to speculate.  It could cost $0.95 to mine $1.00 BTC and the speculators couldn't care less.

[Teej]

It's absurd to think difficulty drives price.

The supply is increasing at a constant, known rate.  ~ 300 coins per hour average. 

The variable is demand. 

How about shorting (i.e seling and rebuying) rather than buying straight away?

That's not shorting.

Shorting is a gambling that the price is going to fall - you sell shares you don't have at what you think is the "high" price, and you have a certain amount of time (based on terms you have with your trading house) in which to buy shares back to cover your short position.  If the price drops as you thought it would, you win.  If the price goes up, you take it in the shorts. 

[murasha]

speculators have absolutely no care about how much it costs to buy hardware or pay for electricity and cooling.

Shure they dont care much about it.
As we seen before, speculators are ready to buy bitcoins for about $30 per coin, correct?

hysterical speculators with tons of bitcoins who made idiotic market

So the reason is hidden in sellers if they selling it now for $17.
I mean current price is caused by sellers more than low buyers bids, correct?
So bids depth was not decreased?
So there are no hidden reasons that makes buyers make low bids - only sellers that ready to sell or such small price?
I cant understand miners that sells bitocins for such price.

It's absurd to think difficulty drives price.

Not exacly.
If I all people got something harder that it was yesterday, thay wants mor money for it.
Its about any product, not just bitcoins.
To make supply stay in constant, people need to add more power to the network. They have to smend more resources.

[murasha]

speculators have absolutely no care about how much it costs to buy hardware or pay for electricity and cooling.

Shure they dont care much about it.
As we seen before, speculators are ready to buy bitcoins for about $30 per coin, correct?

hysterical speculators with tons of bitcoins who made idiotic market

So the reason is hidden in sellers if they selling it now for $17.
I mean current price is caused by sellers more than low buyers bids, correct?
So bids depth was not decreased?
So there are no hidden reasons that makes buyers make low bids - only sellers that ready to sell or such small price?
I cant understand miners that sells bitocins for such price.

It's absurd to think difficulty drives price.

Not exacly.
If I all people got something harder that it was yesterday, they wants more money for it.
Its about any product, not just bitcoins.
To make supply stay in constant, people need to add more power to the network. They have to spend more resources.

[Sukrim]

It's absurd to think difficulty drives price.

Well, as difficulty can influence supply and price can influence difficulty, they are at least loosely linked. You can estimate a maximum value for example for each difficulty, above which it would even pay off to rent Amazon nVidia GPU instances.

A minimum price however is more difficult to guess, as some people will even mine at a loss or don't even face losses when mining, because they dont pay for the electricity themselves.

Currently it looks like 3 difficulty increases ago that a few miners at least suspoend their operations. Noone know if this will continue though. Another factor is that in the past few days much lesss than the daily mining income worldwide was traded on exchanges. This puts quite some pressure on the more nervous "I-have-to-sell-each-day" miners to get rid of their earnings and leaves a lot of other miners with full bags of Bitcoins that they want to get rid of. As you see, they get a bit more careless (a lot of "double trouble" games in the Marketplace popping up) - might even be a good thing, if they now start to use it more as money than as "gold"?

[Teej]

It's absurd to think difficulty drives price.

Not exacly.
If I all people got something harder that it was yesterday, thay wants mor money for it.
Its about any product, not just bitcoins.
To make supply stay in constant, people need to add more power to the network. They have to smend more resources.

The problem here is you're thinking of bitcoin mining as if it were a real world commodity market - as in, say, oil producers pump out oil and put it on the market where it's bought, used and is gone from the marketplace.  Such a market is one-sided.  Those who produce it set the price.  Occasionally commodities traders muddy the water, but by and large the producer determines the price.

That's not what happens here.  

It'd be more appropriate to think of what miners are producing as being like video game / subway / laundry tokens.  They have no value themselves.  Their worth is determined by what people are willing to accept them for, be it at bitmunchies, silkroad, whatever.  For the most part, any bitcoin merchant is basing their price in btc on what they think they can turn around and resell the btc for.  At any time, any token holder is free to resell their tokens.  The cost of producing the tokens is irrelevant...as is the ~ 400 btc per market being brought on the market every hour.  (Yes, ideally it's 300 but at least in recent months it's seemed like miners outpaced the difficulty, averaging 8-9 blocks per hour instead of 6 - if it actually averaged 6, the difficulty wouldn't move)

May not have been the intention behind bitcoin, but that's the way it works today.

There is nothing you can get for bitcoins that you can't get much easier in standard currency...except perhaps if you want the supposed anonymity of shopping at SR.  That is why btc has no value in and of itself.

[Findeton]

Well, as difficulty can influence supply

Difficulty does not influence supply. Supply is practically constant.

[Teej]

Well, as difficulty can influence supply

Difficulty does not influence supply. Supply is practically constant.

Right.  It's quite the contrary - supply influences difficulty.  As supply changes (more or fewer miners) difficulty compensates.