Why $17??

[JTaBitCoinKing]

But stabilization will lead to it being accepted more... thus the price will go up, alas slowly.

Bit-coin really is a win win situation.

[TonyHoyle]

[Price of a fish ~= Cost to get that fish on your diner table.

I guess you never did economics :p

The price of anything is not related to the cost of production, only the price decided by the market.  If you're selling widgets, or fish, or whatever, you sell for whatever people will pay. If they won't pay for your cost of production then that's tough, really... you either take the loss or go and do something else (or run an advertising/rebranding campaign to bring the perceived value up).

[Bitcoinreminder.com]

Hmm.. what happend now? Transaction about 900k happened?

[elggawf]

Not a fallacy. That's why.

Whilst the cost to mine a bitcoin is less than the price to sell one, there will be an incentive for people to start mining. Difficulty and even technological advances are irrelevant.

It's not only true of bitcoin, it's true of gold and very other natural scarce resource that I've looked at so far. Not precisely but certainly the same order of magnitude.

Price of a fish ~= Cost to get that fish on your diner table.

You guys who keep peddling this bullshit theory are disregarding two things:

a) No one who sees fit to "invest" in Bitcoins from an outside perspective really gives a shit about the cost to mine. If they do any sort of research, they might look at the overall hash rate of the network and compare how much it would cost an outside party to attack the network, but I doubt most even do that. They certainly don't give a shit about what kind of ROI you expect on your mining rig;

b) There are always going to be people who mine cheaper than you do. You're thinking that Bitcoins cost $X to mine because your rig cost this much and you're expecting to pay it off over a 6 month period and the difficulty went up so blah blah blah. No one gives a shit. Johnny CollegeStudent just bought a 2x 6870 rig with his grant for college and his dorm room's power is "free" (in his eyes). He doesn't give a shit that you really need a $15+ Bitcoin this week for your ROI plan not to nosedive - he wants a dimebag and he doesn't have a Silk Road account so he's going to sell it for whatever he can get on MtGox.

Your argument might hold water if all miners held the line and no one wanted to drop below a certain figure - you're a fool if you think that's gonna happen. My 5770 is all paid off, so depending on what the market's doing I'm going to mine for whatever I feel comfortable making a profit at (and stop beating the shit out of my brand new, free GPU if it falls below that), and I don't particularly give a shit to hold some line or another - I'm going to take $16.80 today than risk having to take $13 tomorrow, and I'm sure I'm not the only one.

[SlipperySlope]

Hmm.. what happend now? Transaction about 900k happened?

Looking over my Mt Gox trade log, I do not see any single large transaction that caused the move.  Rather there are many small, almost random sized transactions on the way down and on the way partly back up.  Here is one of the larger ones that occurred shortly after the 16.65 level was breached ...

[mtgoxUSD 1309472003463345 2011-06-30T17:13:23.000-05:00 269.10395017@16.64001]

It would be a chance for certain market makers subject to the .3 % commission rate to make a profitable trade - given how relatively large the spike down was.  I suppose that once the swing began, existing bid limit orders were cancelled and moved lower thus drawing the price downward in the face of continuing market sales orders.  I do yet track Mt Gox open order issuance, matching and cancellation, but once that happens it will be easier to explain this sort of behavior - but only the point of ignoring open orders in the dark pool.

Modern trade execution prefers to break up a single large order into seemingly unrelated smaller chunks.  Even if executed from the dark pool to hide the order, trades become  public knowledge once matched.  Breaking up a such a trade is a tactic to out-game front-running algorithms. 

[proudhon]

Come on, someone push it up to 17.25!

Not going to happen.  In all likelihood, the market is being manipulated down by people with the money/BTC to do it.  My prediction is further exchange rate decreases as they buy the bitcoins that scared sellers sell to them and subsequently move their flypaper bids even lower.

Oh, hey, whadya know...

[WNS]

Show me how you got your 500% and I'll send you some cash and you can keep half of the ROI. Scrap that. I'll just buy more coin.

I bought 1Ghash that pulls 900W for $800.

go to http://bitcoinx.com/profit/index.php and plug in those numbers for a 12mo period. The calculator counts your hardware as a cost, but it's really more of a capital investment, and should not be counted against ROI.

Now 500% ROI is pretty sweet, but this is a risky investment. My miners would go off tomorrow if my countries government decided that BTC was a criminal enterprise, and I would be left sitting on unproductive capital. I would not add capital to this market with ROI under 300%, and I don't see how any business person could rationalize such an investment. Perhaps I would change my tune in 12-18mo, but not in the short run.

[SlipperySlope]

The calculator counts your hardware as a cost, but it's really more of a capital investment, and should not be counted against ROI.

What you call ROI is more correctly called operating income - which supports your point just fine.  Return on investment is all about return on capital invested. 

[DamienBlack]

Show me how you got your 500% and I'll send you some cash and you can keep half of the ROI. Scrap that. I'll just buy more coin.

I bought 1Ghash that pulls 900W for $800.

go to http://bitcoinx.com/profit/index.php and plug in those numbers for a 12mo period. The calculator counts your hardware as a cost, but it's really more of a capital investment, and should not be counted against ROI.

Now 500% ROI is pretty sweet, but this is a risky investment. My miners would go off tomorrow if my countries government decided that BTC was a criminal enterprise, and I would be left sitting on unproductive capital. I would not add capital to this market with ROI under 300%, and I don't see how any business person could rationalize such an investment. Perhaps I would change my tune in 12-18mo, but not in the short run.

That calculator does not take into account future difficulty. In a month, you could be only getting a third the bitcoins you are now. Make sure you factor in difficulty. As a general rule of thumb, the bitcoins you make in the first 10 days are 1/3 of all the bitcoins you are ever going to make.

[dennis_sweden]

The role of money is to facilitate trade. Some have argued that the value of Bitcoin is relative to the cost of mining; however, this approach does not take into account the function of money.  As it stands today, Btc functions very little as a money, so calculations based on the cost of mining + speculation are understandable, and perhaps even correct. However, if Bitcoin does expand and becomes a method of payment, this calculation will be inherently flawed.

The "equation of exchange" is determined by the relationship between money supply, velocity of money, the price level and an index of expenditures. M x V = P x T, where M = money supply, V = velocity of money, P = average price level of goods, T = number of transactions. However, in the case of Btc, the cost of mining must be added to the equation. M x V = P x (T + Y). Y being the cost of mining, which counts as an additional cost to each transaction.

i.e. On a yearly basis services and goods of a value of $12M are traded through Btc. At that point of time, maybe 8M Btc exist, and maybe 500.000 Btc users exist. However, around 5M Btc are likely to be held by early adapters who do not use the Btc to trade goods and services with. So 3M Btc must facilitate trade. In this scenario, each Bitcoin must be transferred 4.3 times per year, however, Btc are likely to be transferred more than 4.3 times per year. However, suppose each Btc is only transferred 4.3 times per year. Say the cost of mining is $1M per year. A reasonable price for Btc would perhaps be between $5-10. EDIT

M x V = P x (T + Y) 3 x 4.3 = 13 (where 1 is the value of Y)

Based solely on the trade volume versus trade circulating Btc, price would be $3. If each Btc was transferred more times, the price of Btc would be lower. However, if the Btc economy had grown in 1 year to become a $12M economy with 500.000 Btc users/owners, potential for further growth would obviously exist, which could account for $2-7 of Btc price. If some early adopters were to cash out and their Btc were bought by traders rather than "hoarders", the price of Btc would fall in a rough proportion to the amount "released" into the economy. Speculation in Btc would reflect all the inherent price dependents, and speculators would keep track of the amount of Btc released into the economy, so although the average trader would not possess relevant market information, the price of Btc would more or less equal the value of Btc due to competitive speculation.

However, if the Btc economy were to have a value of $120 m per year and only 8M or maybe 8.5M Btc are in existence, of which perhaps 6M Btc facilitate trade (if the economy was that large and stable, I suspect many early adopters would in due course of time cash out on a fair amount of their holdings, which would not sink the price and which could be invested more profitable,) the price of Btc, without taking speculation into account, would be somewhat less than $20, depending on the amount of transfers of each Btc per year.

All of above numbers are just hapzard guesses, however, the above calculation could be used to forecast the price of Btc in the future, and also determine whether today's price reflects reality or not; or so I believe.

Disclaimer: I withdrew my USD from Mtgox without having made any trades, and am not looking to put any money into the market before an actual marketplace exists, or is at least far more developed than today.

[zby]

Hmm.. what happend now? Transaction about 900k happened?

Looking over my Mt Gox trade log, I do not see any single large transaction that caused the move.  Rather there are many small, almost random sized transactions on the way down and on the way partly back up.  Here is one of the larger ones that occurred shortly after the 16.65 level was breached ...

[mtgoxUSD 1309472003463345 2011-06-30T17:13:23.000-05:00 269.10395017@16.64001]

It would be a chance for certain market makers subject to the .3 % commission rate to make a profitable trade - given how relatively large the spike down was.  I suppose that once the swing began, existing bid limit orders were cancelled and moved lower thus drawing the price downward in the face of continuing market sales orders.  I do yet track Mt Gox open order issuance, matching and cancellation, but once that happens it will be easier to explain this sort of behavior - but only the point of ignoring open orders in the dark pool.

Modern trade execution prefers to break up a single large order into seemingly unrelated smaller chunks.  Even if executed from the dark pool to hide the order, trades become  public knowledge once matched.  Breaking up a such a trade is a tactic to out-game front-running algorithms.  

1.  About midnight GMT yesterday (that can match the 17:13:23 of your log if your timezone is way to the west) I noticed that there is one very big bid at 16.64, and very very small bids over it.  For a long time I've suspected that the large bids are bluffs and yesterday I tried this theory by selling all the way down to that large bid.  Immediately this bid disappeared and the price dropped to below 16 in a few minutes.  It later rebound - but it is still way below 16.7.  For the price of selling a lot of bitcoins at a good price (for now) I verified my little theory about these large bids.

2. I don't think there are dark pool orders now - at least I cannot do any dark order now.  It would be nice if MtGox clarified this - but maybe that it too much to expect from them.

3. The big bids did not appear back today - the charts show about 20K BTC of accumulated bids above 14.7 while this was more than 40K yesterday.

4. Maybe someone was trying to stabilize the strong down pressure of the market now by placing these big bids - but they were not determined enough to keep these orders when they were close to be realized.

[Rodyland]

1.  About midnight GMT yesterday (that can match the 17:13:23 of your log if your timezone is way to the west) I noticed that there is one very big bid at 16.64, and very very small bids over it.  For a long time I've suspected that the large bids are bluffs and yesterday I tried this theory by selling all the way down to that large bid.  Immediately this bid disappeared and the price dropped to below 16 in a few minutes.  It later rebound - but it is still way below 16.7.  For the price of selling a lot of bitcoins at a good price (for now) I verified my little theory about these large bids.

Interesting move.  I guess you could have taken out the bid by putting your sell order in as one big sell, but that wouldn't have "proven" that the big bid was a bluff.

Now the pertinent question - did you make a quick profit by buying back in when the price support evaporated? 

[tonto]

I'm just sad I don't have a ton of money to manipulate the market
 
Everytime I put in a bid for something then it swings the other way, and then after a few days of that I cancel my bids, and then it hits my target *sigh*

[zby]

Interesting move.  I guess you could have taken out the bid by putting your sell order in as one big sell, but that wouldn't have "proven" that the big bid was a bluff.

Now the pertinent question - did you make a quick profit by buying back in when the price support evaporated?  

I did not - apparently I am not that good day trader, but maybe this is actually a good time to realize my profits?

[BkkCoins]

It's true that in a mature market the cost of making the Bitcoins would have little influence on the trading price, I think here you need to take into account that some sizable percentage of the Bitcoins for sale at any moment are from miners who just newly minted them.

If some miners decide that they won't sell below X price then it's going to have a fairly strong impact on this market due to the low volumes. 500 new BTC come into play every hour and my guess is that many miners want to sell them asap. If they were on the verge of leaving the business they might accept lower prices to get out but I don't think most miners are in that mindset.

[zby]

The reason is simple:

http://www.google.com/trends?q=bitcoin&ctab=0&geo=all&date=ytd&sort=0

We've temporarily leveled off on google trends. Our search engine trend has been _highly_ correlated with the price of bitcoin. See my post here from a few weeks ago.

http://forum.bitcoin.org/index.php?topic=17318.0

I think this lull is temporary, and as soon as interest picks up in new, more mainstream sectors, the price will start rising again. Just keep checking the google trend line, when it goes up, you've got about a day or two before prices start rising (google trends is delayed three or four days, which is about the time someone needs to get money in).

When you try just this month - this looks much more pessimistic:

http://www.google.com/trends?q=bitcoin&ctab=0&geo=all&date=mtd&sort=0

[BkkCoins]

When you try just this month - this looks much more pessimistic:

http://www.google.com/trends?q=bitcoin&ctab=0&geo=all&date=mtd&sort=0

Interesting that Swedish, Finish and German ranks higher than English.
Also Canada and Australia higher than USA.

[dennis_sweden]

I am bloody annoyed with myself, my previous post in this thread is complete nonsense and makes no sense whatsoever.

[Alex Beckenham]

Everytime I put in a bid for something then it swings the other way, and then after a few days of that I cancel my bids, and then it hits my target *sigh*

There's a name for that phenomenon: It's called 'day trading'.

[Capitan]

Might be a big hoarder who decided to cash out at 17$, now instead of later.

Why would a seller want to keep the price down?

A miner would want to keep the price down to keep other miners from starting/expanding mining ops, to therefore keep difficulty in check. Eventually that miner would want to lift their price control and let the price rise so they could dump all their BTC onto the market.

If that were what was happening you could work backwards from the BTC price to figure out what their mining costs are. I'm making a rough guess and saying they pay about $.18/kwh and want the BTC price to stay above their mining costs. If smart, such a person would  have set the price in advance of the difficulty, because hashing power is still increasing.

I don't think anyone would do this though. Just throwing it out there as an interesting scenario.