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Author Topic: Why $17??  (Read 12341 times)
ElectricMonk
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July 01, 2011, 08:10:09 AM
 #81

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.

There's no bullshit just facts, mathematics, reason and economics.

If you can make/find/mine for a price cheaper than you can sell then they'll be an incentive for new entrants. Competitive markets have low profits.

[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).


If people won't buy your fish for the cost it took you to get it to them then you'll stop fishing because that signals increased supply and/or reduced demand. (N.B. I'm talking all costs here - assets, labour, opportunity, knowledge attainment.) If BTC mining becomes a bigger operation then you can bet that the bulk of those costs will be fuel for the rig and that will be damn close to the BTC price as it is with everything else.

An oz of Gold costs about the amount it takes to get it out of the ground. Same with oil, copper, iPhones, whores, cocaine, apples, oranges, fish, widgets. Similarly, a bitcoin will find its value at about the amount of energy/time/knowledge/opportunity cost that it takes to produce one.

I can't believe that anyone would even dispute this. It's just economic reality. 'Money making machines' don't stay 'money making machines' for long.

PS. I'm not a miner. I bought my BTC.
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zby
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July 01, 2011, 08:57:32 AM
 #82


If people won't buy your fish for the cost it took you to get it to them then you'll stop fishing because that signals increased supply and/or reduced demand. (N.B. I'm talking all costs here - assets, labour, opportunity, knowledge attainment.) If BTC mining becomes a bigger operation then you can bet that the bulk of those costs will be fuel for the rig and that will be damn close to the BTC price as it is with everything else.

An oz of Gold costs about the amount it takes to get it out of the ground. Same with oil, copper, iPhones, whores, cocaine, apples, oranges, fish, widgets. Similarly, a bitcoin will find its value at about the amount of energy/time/knowledge/opportunity cost that it takes to produce one.

I can't believe that anyone would even dispute this. It's just economic reality. 'Money making machines' don't stay 'money making machines' for long.

PS. I'm not a miner. I bought my BTC.

The difference between bitcoins and gold and other products is that it does not matter how many people mine bitcoins - the supply of bitcoins is constant (up to minor fluctuations and assuming that the computing power of the bitcoin network mostly grows), the algorithm adjusts the difficulty to the computing power of the network so that there should always be about 50 new bitcoins every 10 minutes.  The price is relative to the supply and demand and in normal circumstances the supply depends on the cost and thus cost influences the price.   But it is not the case with bitcoin.
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July 01, 2011, 10:57:48 AM
 #83

zby:
> 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.

There are no dark pools now.

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WNS
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July 01, 2011, 12:32:33 PM
 #84

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. 

While ROI is calculated against capital investment, it does not assume the liquidation of capital. Now you could, of course, depreciate your capital, but that becomes rather insignificant with ROI in the mid triple digits.

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.

While this is true, the question was weather we had reached parity NOW, and we have not. I don't see any way for the mining market to rationalize significantly expanding given the current legal and market uncertainty unless there is > 300% ROI on the day the hardware is ordered.

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SlipperySlope
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July 01, 2011, 02:07:46 PM
 #85

I'm just sad I don't have a ton of money to manipulate the market Sad
 
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*

Bluff bid/ask orders attempt to manipulate the market by providing a false indicator to traders' and algorithms' depth-of-market decisions.  These are legal, and risk of actual order filling is reduced if a high-frequency algorithmic bot cancels the order in time.  On the other hand, actually placing orders to "paint the tape" may constitute illegal activity in regulated financial markets.  See http://en.wikipedia.org/wiki/Market_manipulation.

Your personal trading activity is stereotypical with regard to modern markets dominated by market-making algorithmic bots.  Such algorithms are not based upon emotions, i.e. greed and fear. Personal market making or day trading without the aid of a computer trading system is nowadays difficult. Of course there may be plenty of profit without a computer trading system - simply buy dips and hold, or even more simply - cost average bitcoin purchases and hold. 

See: http://en.wikipedia.org/wiki/Dollar_cost_averaging
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