Difficulty and BTC value

[drwho88888]

Does anyone know if there is a relationship between the two statistically ?

[MagicBit15]

Yes.

[drwho88888]

LOL

And ? What is it, or aren't you telling and expect me to find out for myself ? (Or do you consider it a top secret notion which will give the keeper of the secret a big advantage ?)

[crashoveride54902]

i think that first reply was pulling your chain...but hey i could be wrong...I don't think the diff. rate and btc value have anything to do with each other...market is based off of supply n demand i think...i'm no expert and don't claim to know alot but that is just my opinion so take it for what its worth

[derr777]

absolutely not.. its crazy to think there is.. no statistical regression shows it, and the rumor that was circulating here about its truth was based on something spiritual, because it certainly wasn't mathematical.

In other words, if you want to base a theory on faith, feel free.. I'll stick with mathematics.

[os2sam]

I'll go with the yes as well.

So,
Yes,
Sam

[drwho88888]

"its crazy to think there is"

Beg to differ. Its a reasonable question to ask, particularly if you're a mathematician, as I tend to be.

Difficulty changes the rate at which coins are mined and therefor has a distinct effect on their supply. Supply and demand each affect the value. That's maths. QED

[derr777]

but thats not true... difficulty does not change the rate at which coins are mined.  Difficulty is adjusted based on hashrate (computational power of the network) so that the exact same number of coins are mined per hour.

So, only in between a difficulty adjustment is there any potential difference in the rate of mined coins, and it will have a direct effect on the next difficulty increase, so its only very temporary, if at all.

Difficulty is adjusted *SO THAT* the rate of coins entering the economy over time doesn't change.

So I go back to the statement that difficulty and price are nowhere near related.  If they are related, show me the equation.. I've looked at this and tried, there is no statistical correlation.

I think people want to believe there is, but the fact is there isn't.  And yes, that basically means that difficulty will continue to exponentially increase, and that also means that mining profits approach zero over any decently long time frame, if price doesn't rise.  Price *could* rise because of economic variables, but its not going to rise because of difficulty increases.  There is no causal relationship there.

[drwho88888]

Understood and if you've looked at the stats then that's fine. I didn't know if they were related or not. If they're not, then they're not. Thanks.

[Stephen Gornick]

So I go back to the statement that difficulty and price are nowhere near related.  If they are related, show me the equation.. I've looked at this and tried, there is no statistical correlation.

There certainly is correlation:


 - https://docs.google.com/a/digicoast.com/spreadsheet/oimg?key=0AmcTCtjBoRWUdHVRMHpqWUJValI1RlZiaEtCT1RrQmc&oid=10&zx=cdrtjfh4wgfg
 - https://docs.google.com/a/digicoast.com/spreadsheet/ccc?key=0AmcTCtjBoRWUdHVRMHpqWUJValI1RlZiaEtCT1RrQmc (underlying data)

Clearly, difficulty does tend to rise when the exchange rate rises, difficulty drops are correlated as well though less so.

But the relationship is that difficulty follows price, and not the other way around.
 - http://blog.brocktice.com/2011/05/25/the-relationship-between-bitcoin-price-and-difficulty/

[xristoskostouros]

It is as simple as maths and economy.
Price rises when Demand rises.
Price goes lower and lower when Demand goes lower and lower.
It is really simple.
So, we expect to see a lower Demand because of the difficulty now with the asic. So, we will have lower prices.
(People will start to sell their bitcoins because they will stop playing this game e.t.c).
So, i think, the end is coming pretty soon

[os2sam]

show me the equation..

there is no statistical correlation.

Equations and Statistic's are two different things.

"E=MC Squared" is an equation.

The statistical average of the energy released in a nuclear detonation is going to be something different because there are an infinite number of variables which no equation can duplicate exactly.
Sam

[drwho88888]

Thanks Stephen. Some interesting links.

[derr777]

so.. the highest % difficulty increases on record (the last several weeks,) have done nothing to price.

This is not enough to abandon the argument?  How long are we going to have rising difficulty and falling or stagnate price (the last month) before someone is going to admit there is no relationship between the two.

Lets move away from mathematics for a moment and speak intellectually.  What would cause the two to be correlated?  Interest in the coin as currency?  That is about the only decent argument I can think of.

THis argument is only important in so much as we can use it to predict future outcomes anyway.  I'll go on record as saying there will be no price rise for the coming difficulty wave.  Price will cause more capital to be spent to attain mining hardware *only* if there is return on capital available or predicted as a result.  If price rises after difficulty has moved up 10x while price stayed at the level it was at the entire time, it will not necessarily result in any further difficulty increases.

We could definately have rising price after a huge sell-off that would not cause difficulty to increase, in other words.

I think pure speculation is far more responsible for current price than most want to believe. 

[os2sam]

so.. the highest % difficulty increases on record (the last several weeks,) have done nothing to price.

This is not enough to abandon the argument?  How long are we going to have rising difficulty and falling or stagnate price (the last month) before someone is going to admit there is no relationship between the two.

snip...

I think pure speculation is far more responsible for current price than most want to believe.  

There is, obviously, a relationship between price and difficulty.

The exact nature of that relationship can't be absolutely known and constantly it changes.

That is what the statistical analysis after the fact is for, to determine what those relationships are.  Maybe an equation can be developed to help determine future changes.  But that equation will never be 100% accurate because there will always be new variables that will change the outcome.

Your first observation  is accurate, for the moment.

Your middle argument has no objective proof.

Your last statement sounds very reasonable.

Sam

[derr777]

We agree to disagree on a few points I suppose.  I will rephrase my argument by saying "there is no causal relationship'.  I actually still believe there is no relationship, period. 

I don't think it has been proven that there is; nothing in this thread or otherwise is convincing.  Having said that, I have not proven, without any doubt, that there isn't, either.

[computerparts]

i think that first reply was pulling your chain...but hey i could be wrong...I don't think the diff. rate and btc value have anything to do with each other...market is based off of supply n demand i think...i'm no expert and don't claim to know alot but that is just my opinion so take it for what its worth

+1

[os2sam]

We agree to disagree on a few points I suppose.  I will rephrase my argument by saying "there is no causal relationship'.  I actually still believe there is no relationship, period. 

I don't think it has been proven that there is; nothing in this thread or otherwise is convincing.  Having said that, I have not proven, without any doubt, that there isn't, either.

It seems Mr. Gornick's post with the charts prove there is a relationship.  But what the true nature of that relationship is?  Only historical analysis will reveal.

I have no means to prove or disprove either position.
Have a good weekend,
Sam

[bobsmoke]

Thanks Stephen. Some interesting links.

+1

[Wepp]

Historically, difficulty and exchange rate have shown correlation. However, correlation != causation.

One could argue that increase in difficulty helps drive increase in value, but difficulty is only one of the many factors that must be considered.

For the past, present and near future, the most important factor, besides difficulty, that affects BTC exchange rate is speculation of its future value. These two factors, are the major drivers of exchange rate. Alas, while difficulty is a concrete measurement, speculation of future value is not so easily measured.