Hashrate VS Price

[Frozenlock]

That actually allows me to highlight another reason why miners mine.

For enjoyment. They're geeks after all and this is what they do.

Hashrate influences the price by making speculators more confident that their money won't disappear from a 51%attack.

Why not mine their own little Bitcoin fork? Same hassle, same fun?  
But yeah, I see your point.

Like I said, I've never seen anyone saying he is concerned by the "low" hashrate.
I also think this is way above the head of many speculators.

[cypherdoc]

We must not forget free electricity for the average college geek miner.

And then who doesn't like the idea of printing up money?

Especially when you don't have to dig.

[cypherdoc]

That actually allows me to highlight another reason why miners mine.

For enjoyment. They're geeks after all and this is what they do.

Hashrate influences the price by making speculators more confident that their money won't disappear from a 51%attack.

Why not mine their own little Bitcoin fork? Same hassle, same fun?  
But yeah, I see your point.

Like I said, I've never seen anyone saying he is concerned by the "low" hashrate.
I also think this is way above the head of many speculators.

You're right. This is very much over the heads of most speculators.

I talked to a couple of guys at the conference looking to get involved by buying up alt coins. I warned them that speculative attacks could easily be carried out by bitcoin miners looking to destroy competitors. The thought clearly had never occurred to them.

Sure enough in the very next session crazyrabbit explained to everyone how freicoin had just gotten taken down by an attack. And now more recently we get another attack on feathercoin?

The mind of a miner is a unique thing.

[Gatekeeper]

Imagine two identical gold mines, mined by two different companies, both offer stock. Mine Co A has a bunch of labourers with pick-axes and donkeys to pull mine carts, Mine Co B has a drill, dynamite, rail engines, and rock crushers. Obviously Mine Co B's stock will be worth more because they will be more efficient.  

This may be true in the real world but it's not true in Bitcoin world.It would only be true if the mining companies were allowed to mine as much gold as they wanted, but that is not the case in Bitcoin world, you can only mine a set amount per day.

So what would happen is this:

The mine owner would go to Mine Co A, see they only have labourers with pick-axes and donkeys and so tell them "you guys can go mine on the edge of the mine where the rock is soft and the gold is easy to get to, that way you can still get your 100 nuggets per day

The mine owner would go to Mine Co B, see they have all the best stuff and say " because you guys have all the best stuff i'm sending you deep into the mine to work on the hardest rocks that are tough to get out, so you'll also end up getting 100 nuggets per day.

In Bitcoin world company B would NOT be much more valuable than company A, they would be worth the same amount because they both produce exactly the same amount of gold per day/month/year

I am not involved in mining at all so could be completely wrong BUT from the anecdote above it i would probably have to disagree with Frozenlock. This is because:
A hash rate that goes higher and higher means it's harder and more expensive to mine the nuggets. If companies were having to buy newer, tougher more expensive machinery to mine and the nugget stays at $1 you would hit the point where all companies would go bust because the rising cost of the evolving machinery would mean that no one could make a profit, so the price of the nugget would HAVE to keep increasing so that the companies mining were always able to turn a profit.

or to take Frozenlocks example:
"People go deep to mine gold because it's valuable; gold is not valuable because people have to go deep to mine it."

Actually, if it only cost you $1 to go deep and mine that gold you'd be happy selling it for $5, but if it cost you $10k to go mine that gold would you still sell it for $5? No of course not, the price would be over $10k because you'd still have to turn a profit. In a sense he is right that gold is not valuable because people have to go deep to get it, BUT it's value IS and WILL BE determined on how much it costs you to get deep enough to mine it. If you could go out with a snorkel and grab a pearl you'd be happy to sell it cheap, if you had to buy a super yacht and build one of those funky submarines to grab the pearl would you still sell it as cheap? of course not, the bottom line price of the pearl WOULD be determined by the cost of obtaining it.

If the hashrate goes up and up then it means it's becoming harder and more expensive to mine the bitcoins, which means the price will have to increase.

[N12]

You're right. This is very much over the heads of most speculators.

I talked to a couple of guys at the conference looking to get involved by buying up alt coins. I warned them that speculative attacks could easily be carried out by bitcoin miners looking to destroy competitors. The thought clearly had never occurred to them.

Sure enough in the very next session crazyrabbit explained to everyone how freicoin had just gotten taken down by an attack. And now more recently we get another attack on feathercoin?

The mind of a miner is a unique thing.

Exactly, most people couldn't give a fuck, and that's why I find the idea questionable of there being lots of money on the sidelines but just waiting for difficulty to increase.

You are right on the money about the scamcoins, and that includes Blightcoin as well. There can be no second proof of work chain in the long term, doesn't even matter if the algorithm is different. Eventually, it will be attacked by people with vested interest in Bitcoin. It all amounts to sucking money from unsuspecting people.

[cypherdoc]

Well then you're gonna have some explaining to do in regards to timing because we are not going to peak and slowly diminish any time soon as Avalon batch 2 will be delivered in 1-3 days followed by batch 3 and more asicminers.

So, what you are saying is that the Avalon batch 2 and the batch 3 of asicminers are not going to increase the hashrate?
Because such a jump in the hashrate sure would look like a peak following the price in my book.

Reddit was full of people investing in mining a month ago. Now it's rather... silent.
My guess is many bought mining equipment and they will receive it in the coming weeks/months.

I also disagree with your visual interpretation of price always leading. If you really zoom in and look carefully I could make the opposite argument that hashrate leads. It's just that the price spikes are so violent in comparison that it looks like they're leading.

Do it! I'm open to discussion. If you can zoom in and circle the interesting parts, I'll be happy to look.

Your gold mining analogy is also off as gold miners do not have a philosophical motivation to help or secure a network as do bitcoin miners.

Ok... and the consequences of the philosophical motivations are....?



While some argue some of my points, I've yet to see an opposing argument showing that hashrate influences the price.

Ok.

Let's look at the period between November 2011 and December 2012.

I contend that the hashrate was going straight up while the price kind of bumped along sideways and slightly up.

I could make the argument that that hashrate rise is what led to the parabolic price spike beginning in February.

[Frozenlock]

or to take Frozenlocks example:
"People go deep to mine gold because it's valuable; gold is not valuable because people have to go deep to mine it."

Actually, if it only cost you $1 to go deep and mine that gold you'd be happy selling it for $5, but if it cost you $10k to go mine that gold would you still sell it for $5? No of course not, the price would be over $10k because you'd still have to turn a profit. In a sense he is right that gold is not valuable because people have to go deep to get it, BUT it's value IS and WILL BE determined on how much it costs to get deep enough to mine it.

If the hashrate goes up and up then it means it's becoming harder and more expensive to mine the bitcoins, which means the price will have to increase.

Not exactly.

If it costs you $10k to dig an ounce of gold, it doesn't mean that's the price it will have on the market.
It means you won't mine it unless gold is valued at more than $10k.

Same thing with mining bitcoins.
If it becomes more expensive to mine, less people will mine.
(While the supply should stay more or less the same, thanks to the network automatic adjustment.)

[N12]

the bottom line price of the pearl WOULD be determined by the cost of obtaining it.

If the hashrate goes up and up then it means it's becoming harder and more expensive to mine the bitcoins, which means the price will have to increase.

Really, labor theory of value?

[Frozenlock]

the bottom line price of the pearl WOULD be determined by the cost of obtaining it.

If the hashrate goes up and up then it means it's becoming harder and more expensive to mine the bitcoins, which means the price will have to increase.

Really, labor theory of value?

I'm preparing for the broken window fallacy. 

[Frozenlock]

Ok.

Let's look at the period between November 2011 and December 2012.

I contend that the hashrate was going straight up while the price kind of bumped along sideways and slightly up.

I could make the argument that that hashrate rise is what led to the parabolic price spike beginning in February.

You could. 

The relationship would be far less obvious... and it seems the price bottomed before the hashrate.
Unfortunately I don't have the tools to make a more detailed graph of this period (at least not for the hashrate).

[cypherdoc]

Ok.

Let's look at the period between November 2011 and December 2012.

I contend that the hashrate was going straight up while the price kind of bumped along sideways and slightly up.

I could make the argument that that hashrate rise is what led to the parabolic price spike beginning in February.

Yes you might say it's

You could.  

The relationship would be far less obvious... and it seems the price bottomed before the hashrate.
Unfortunately I don't have the tools to make a more detailed graph of this period (at least not for the hashrate).

You could say it's less obvious but we both are stuck having to explain the complete divergence occurring this very moment between the two.

But if price breaks up following the hashrate then...  

[Frozenlock]

You could say it's less obvious but we both are stuck having to explain the complete divergence occurring this very moment between the two.

Lag between price and hashrate, like every other time?

[Malawi]

Some of the rise in hashrate is probably because of the price-peak. But the hardware coming online these days have been ordered months ago.

I think the rise was due to both increased interest and miners who wanted to increase their holdings without buying mining-equipment since they knew difficulty would soon skyrocket anyways.

[PrintMule]

More btc generated daily, miners selling as they mine, competing with each other, lowering their prices as they go. Disappointed low hashrate miners running like a rat from a sinking ship sell everything they have, resulting in even lower price.

Also: who BUYS btc?! Those who want to get on with mining, to get themselves some asics, etc? Traders who want to get into while they can? in General - people who want to get profit from BTC. And profit for everyone is not possible.

As soon as it fails to look profitable enough, people will lose interest, and will not buy anymore. Guess what kind of result it will lead to.

this thing is like a ponzi, kept alive by greed to a certain point.

[BitPirate]

More btc generated daily, miners selling as they mine, competing with each other, lowering their prices as they go. Disappointed low hashrate miners running like a rat from a sinking ship sell everything they have, resulting in even lower price.

Also: who BUYS btc?! Those who want to get on with mining, to get themselves some asics, etc? Traders who want to get into while they can? in General - people who want to get profit from BTC. And profit for everyone is not possible.

As soon as it fails to look profitable enough, people will lose interest, and will not buy anymore. Guess what kind of result it will lead to.

this thing is like a ponzi, kept alive by greed to a certain point.

BUYERS:

Not a Ponzi, a pyramid.

People joining the pyramid can very much continue to profit provided the size of the pyramid can grow to accommodate them. Everyone can  profit, up to a point. The real question is where that point lies.

By your own admission, Bitcoin is as yet under-developed. So if one assumes that Bitcoin will become more useful, then the pyramid can and will grow. If BTC is to be successful as a real currency, that point may lie very far in the future.

(On the flip-side: examine your own beliefs... If you believe the pyramid cannot grow further and there can be no future use, then why are you here?)

SELLERS:

Supply is constant, so it can effectively be factored out of the above argument. I therefore agree with the OP -- I don't see how hashrate is relevant to price.

[PrintMule]

Yeah, a pyramid was what I meant.

lackluster language skills on my part

[johnyj]

However, I believe there is another effect, and it's that an increase in profit margin is bullish because miners can afford to speculate with a larger portion, ie hold them. Currently, the profit margins are of course rapidly decreasing due to sideways/downwards price action and still skyrocketing difficulty. My assumption is that the percentage of the daily mining subsidy (3600 BTC) that is released to the market is increasing because the costs that have to be covered are rising.

This is an interesting view, if more people join the mining operation, their profit margin will shrink and create a downward pressure on the price. But this is under the assumption that they have no fiat money to cover their cost, actually many people are converting their fiat into bitcoin in this process

IMO, price is always a leading indicator for fundamentals, the reason price increased so fast at the beginning of this year is because of reward halving and difficulty rise caused by ASIC devices. Just after Avalon batch 1 delivered, the price erupted. Many investors start to quit mining and buy coin directly (Because there is no way to get a ASIC device in a reasonable time frame)

Currently most of the investment money is going into ASIC device order, there are less support for the exchange price, but soon after the number of ASIC devices reaches 36000, average per device return will drop to 0.1 coin per day, at that stage investors will have no other choice but buy coins

[Malawi]

More btc generated daily, miners selling as they mine, competing with each other, lowering their prices as they go. Disappointed low hashrate miners running like a rat from a sinking ship sell everything they have, resulting in even lower price.

More BTC generated daily?

The difficulty is readjusting to keep the supply at a fixed rate. Even though this means that for a short period of time slightly more BTC's than targeted are mined per day when hashrate increase drastically, It sounds like you have misunderstood how BTC-mining work.

[PrintMule]

Slightly = at least 20% witnessed by my own eyes.
Do not know about precise numbers.

[johnyj]

Yeah, a pyramid was what I meant.

lackluster language skills on my part

A pyramid scheme will collapse when the available money runs out. That's the reason housing collapsed when FED start to tighten the money supply in 2007

But for money, it is very different. Have you ever heard about a pyramid scheme of money? No, because money itself is the unit of counting and its value is perceived as a standard. Even in a very deflative environment like great depression in 1930s, the value of money never rose by more than 40%