Hashrate VS Price

[PrintMule]

pyramid scheme collapses not when the money runs out, but when the interest does

[bitleif]

pyramid scheme collapses not when the money runs out, but when the interest does

Pyramid schemes collapse when you run out of idiots.

All bubbles are pyramid schemes, and bitcoin has just been in a bubble. However bitcoin itself (long term) is not a pyramid scheme nor a bubble.

[mobodick]

Further than that, here's a little graph:

Current asics were sold long before the recent price spike happened.
First asic delivered before price went parabolic.
I'm sure the interactions are more complex than 'price leads hashrate'.

[johnyj]

pyramid scheme collapses not when the money runs out, but when the interest does

You can also view it like that, then that's the reason bitcoin is not a pyramid scheme, since the interest for money never dies

[Adrian-x]

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

Anyone has any data pointing to a reverse relationship, where hashrate would be driving price?

Hashrate has an effect on price, no doubt about it.  

During the time between October 2010 and March 2011 Hashrate drove up price. (Contrary to Frozenlock's observation) The first publically available GPU mining software came online during this time Difficulty increasing changed the CPU miner's landscape, demand to buy XBT drove price to $1USD. ( a growth stage)  

Price fell as mining supply and demand equilibrium was reached. (a development stage)

Once GPU mining was established,  Price Drove up Hashrate.  May and June of 2011.(consistent with Frozenlock's observation.)  (a growth stage, followed by a falling price and a development stage)

November, December 2012 ASICs were in-house being tested, Hashrate increasing - no notable effect on price. (Consistent with Frozenlock's observation.)  (still part of the development stage)

Mid  January, Avalon ships first ASIC, Prise starts accelerating. Anticipation of increased Hashrate, drove up demand and Price (contrary to Frozenlock's observation) but consistent with March 2011 Hasrate increasing driving price. (a growth stage)

We are in a consolidation stage mining supply and demand equilibrium is being reached, (development stage) once an equilibrium is reached,  (the manipulators "conspiracy"  will pump up the next run when the price of ASIC's has fallen and a market balance between mining and XBT profitability is reached. )

Also relevant is XBT 7200 per day were being created relative to trade volume.  And now we have XBT 3600 being created and relatively higher trade volume, but another order of magnitude on Hashrate. (Result is new dynamic in distribution - arguably "stronger hands", or risk takers who believers in Bitcoin as opposed to profiteers utilising existing hardware)

Once the full magnitude of halving and supply and mining production is in balance sometime after all ASIC's Avalon, Butterfly Labs have shipped and ironed out bugs, we'll see another growth stage.  

[Frozenlock]

Hashrate has an effect on price, no doubt about it.  

During the time between October 2010 and March 2011 Hashrate drove up price. (Contrary to your observation) The first publically available GPU mining software came online during this time Difficulty increasing changed the CPU miner's landscape, demand to buy XBT drove price to $1USD. ( a growth stage)  

I fail to see that, could you provide some data?
A temporary surge in the hashrate, reflected later on the price would be interesting to see.

Mid  January, Avalon ships first ASIC, Prise starts accelerating. Anticipation of increased Hashrate, drove up demand and Price (contrary to your observation) but consistent with March 2011 Hasrate increasing driving price. (a growth stage)

If I understand your argument correctly, you are saying that an anticipated hashrate increase would drive up the price.
Thus an increase in hashrate wouldn't be caused by a preceding surge in price; the increase in hashrate would have been anticipated by the market and the price adjusted accordingly.
Is that it?  

We are in a consolidation stage mining supply and demand equilibrium is being reached (...)

Except that the supply is mostly constant. The network adjusts itself to a hashrate increase.

[notme]

I agree with your overall point, but the data doesn't quite tell the story you are trying to portray.  The piece you are missing is that the 2011 run up and the recent run up in difficulty were both triggered by a new technology that dramatically improved the efficiency of mining.  In 2011 it was GPUs and in 2013 it is ASICs.  ASICs are still being deployed and I expect a minimum of triple the current hash rate before we see difficulty top.  As much as 10X the current difficulty may happen, depending on how the price goes.  <-- Again, I agree price ultimately drives difficulty, but technology improvements shift gears.  That being said, as soon as 28nm ASICs make up the majority of the network, we will see technology improvements capped by Moore's Law.  We will then be in "top gear" and we can drive this thing like we stole it.

New and improved technologies do push the hashrate up, but one can still see the clear relation between price and hashrate.

In your explanation, where do the FPGAs fit?

FPGAs were too complicated for the average miner and even though I had the expertise to operate them, I knew ASICs weren't far behind, so I did not invest in FPGAs.  I'm buying ASICs now.  I would attribute the widening gap between difficulty and price before the parabolic move to the small amount of FPGAs that were brought online.

[Adrian-x]

During the time between October 2010 and March 2011 Hashrate drove up price. (Contrary to your observation) The first publically available GPU mining software came online during this time Difficulty increasing changed the CPU miner's landscape, demand to buy XBT drove price to $1USD. ( a growth stage)  

I fail to see that, could you provide some data?
A temporary surge in the hashrate, reflected later on the price would be interesting to see.

When GPU Mining started, in July of 2010 you see a huge increase in hash, (green) as the market reacts you see an increase in price, taking Bitcoin form $0.06 to $0.38 in October.  Then as the technology is adopted, you see another order of magnitude of growth and the price goes to $1.00.    

In the image the yellow bands are what I refer to as Bitcoin growth stages, the result is likely Price driving Hashrate. But it seem to be triggered by an increase in Hashrate:
1) When we moved from CPU to GPU we had a Hasrate jump up an order of magnitude higher, followed by an order of magnitude jump in price.
2) the Hash rate also seemed to increase slightly prior to the June 2011 boom.  
3) GPU + FPGA the December 2011 growth stage was somewhat driven by news of FPGA's  (FPGA's didn't have much of a following as anticipation of ASIC's was high and they offered little benefit over GPU's)
4) in Jan of 2013,the market reacted with demand, just after the inevitable increase in Hasrate and the start of the cretin demise of GPU mining.

Mid  January, Avalon ships first ASIC, Prise starts accelerating. Anticipation of increased Hashrate, drove up demand and Price (contrary to your observation) but consistent with March 2011 Hasrate increasing driving price. (a growth stage)

If I understand your argument correctly, you are saying that an anticipated hashrate increase would drive up the price.
Thus an increase in hashrate wouldn't be caused by a preceding surge in price; the increase in hashrate would have been anticipated by the market and the price adjusted accordingly. Is that it?  

Let me put it this way, every miner knew the Hashrate would go up and GPU mining wouldn't be viable, it wasn't going to happen until it happened.  Only after Avalon shipped was the increase in Hashrate inevitable. The resulting Hashrate increase we have now is a result of the previous development stage (the shipping of ASICs ordered well before the 2013 increase in price.) This Hash increase is mainly driven by the previous development stage.  The price increase was catalysed by the fact that cheep coins were no longer going to be available.

This whole thing is dynamic you are partially correct there is feedback. Although the same thing also happened before the June2011 bubble, Difficulty increased faster than Price, but for simplicity I put my attention to the overwhelming trend that Hasrate increase were driven by an increase in price.

We are in a consolidation stage mining supply and demand equilibrium is being reached (...)

Except that the supply is mostly constant. The network adjusts itself to a hashrate increase.

What adjusts is how the supply is distributed and who gets the XBT has an impact on price.  

[dwdoc]

Frozenlock:

When there is an increasing hashrate there is an increased rate of bitcoin production (since there is a lag between hashrate and difficulty adjustment). Could this result in a small "wealth effect" resulting in miners investing more of their fiat in bitcoin driving the price higher?

[chriswilmer]

I honestly think this is a more complicated issue than many people think it is.

For example, Bitcoin is subject to the "Tinkerbell Effect", where the more people believe bitcoins have value... the more bitcoins have value. Thus, if a miner works really hard to get a bitcoin and so believes that it must be expensive... to some extent the miner's belief is making it true! (of course, no individual can make a substantial effect, but in aggregate this can be dramatic)

[johnyj]

I honestly think this is a more complicated issue than many people think it is.

For example, Bitcoin is subject to the "Tinkerbell Effect", where the more people believe bitcoins have value... the more bitcoins have value. Thus, if a miner works really hard to get a bitcoin and so believes that it must be expensive... to some extent the miner's belief is making it true! (of course, no individual can make a substantial effect, but in aggregate this can be dramatic)

Exactly, the value of money to its root, is wide acceptance and trust. For fiat money, these are ensured by the government and central bank, for bitcoin it is ensured by mathematics and network