A lot of talk about $50, but the very bottom may be lower

[vokain]

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

What are your thoughts about the sort of capital required to begin mining bitcoins vs the sort of investment required to begin a metal mine? Will Bitcoin miners get to the point where they sell immediately upon mining? Or will bitcoins be something people will begin to prefer to hold less expenses that are only denominated in fiat? I imagine that unlike gold miners, bitcoin miners do it not for a stable source of income but more as a side hobby, and are less affected by the relatively lower costs involved in mining bitcoins? If you mine gold, your career is in mining gold. If you mine bitcoins, you can still have a career outside that.

Anyways, the point I'm trying to make is that the people that mine bitcoins are doing it out of speculation. Unlike with the mature gold market, bitcoin prices still have a lot of room to grow. Our miners of all market participants will be expecting this, which is why your breakeven difficulty/kWh point for $30 doesn't mesh with the differing psychologies of bitcoin miners and gold miners. When your investment breakeven point for an ASIC is in the year+ range, surely any intra-month fluctuations are moot considerations if their investment scale is more in the 2-5 year range due to how they see Bitcoin's place in future dynamics.

[RationalSpeculator]

BTC can decline simply from the flow of newly minted coins accumulating on the bid side of the ledger without anyone 'panicking' and choosing to unload long-held coin hoards.  The price of BTC very very closely follows the bid/offer ratio, any change of the number of offered dollars or number of offered Bitcoins has a decided impact on exchange rates.  Each day nearly 4K BTCs are generated (during these times of slightly faster blocks as difficulty is constantly trying to catch up), so unless ALL 4K coins are bought and permanently removed from that side of the ledger you will see a value decline.

In a broader sense BTC valuation is supported by ONLY the daily inflow of new dollars to buy up new coins.  E-commerce transactions have no real price supporting ability because dollars are just transiting through BTC at the volatile exchange rates with both parties buys and sells canceling each other out.  At 4K BTC a day we need to see $400,000 a day be expended to buy coins, the current bid depth of ~10 million can thus absorb about 1 month worth of coins, likewise the ~100K BTCs offered represents about a month worth of mining.

Now one must also consider that miners, particularly ASIC miners are in a position to 'pre-hoard' most if not all of their coins due to their low production costs (ware as a GPU miner at the margin of profitability is presumably selling more coins to cover electricity costs).  Also the typical ASIC buyer is hyper bullish on BTC.  So it is very likely that far less then 4K coins are even flowing into the exchanges and any sell off of BTC happening now are occasional profit takings from old retired whales or small holding non miners who have lost confidence.

At some point enough profitability is squeezed out of the mining that the option of pre-hoarding will end and we will see full liquidation of new coins, only then will we find the bottom.  And it will also be AFTER HASH TOP, as in 2011 the final stage of the bubbles deflation occurs after miners realize they have over extended and their hardware is no longer profitable and some of them shutdown.  Were no ware near the Hash top as it would be proceeded by a slowdown in hash rate growth, this is because of the inertia in the ASIC shipments and their high efficiency which means they are still profitably to run now (but probably not to order).  I expect the Hash top in 3-6 months and the ultimate market bottom ~3 months after that.

This I call great analyses, thank you so much for sharing!

[Raize]

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Probably the smartest thing on here. Finally found someone that thinks like I do. As an ASIC Miner now, I have two options, mine and hoard and sell a year from now, or mine and sell now, and hope to "catch" the bottom to buy back in. Additionally, I have the problem of infrastructure costs, as I need real estate and a facility to host the miners. Alternatively, I could sell the miners now and get some coin up front, which again, I can either hoard for selling probably close to a year from now as the price starts to go back up, OR I can sell it now and hope to buy back in when the price bottoms out.

[Rampion]

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Probably the smartest thing on here. Finally found someone that thinks like I do. As an ASIC Miner now, I have two options, mine and hoard and sell a year from now, or mine and sell now, and hope to "catch" the bottom to buy back in. Additionally, I have the problem of infrastructure costs, as I need real estate and a facility to host the miners. Alternatively, I could sell the miners now and get some coin up front, which again, I can either hoard for selling probably close to a year from now as the price starts to go back up, OR I can sell it now and hope to buy back in when the price bottoms out.

Well, then we are at least three people on the same page. Impaler's analysis is 100% spot on, the mining bubble will have a profound impact on BTC/USD, and while ATM the profits for ASIC miners are still big, we are getting close  to the moment in which many of them will have to shut their rigs off, while immediately selling the generated coins to recoup a fraction of their costs.

[Impaler]

Thanks for kind reply guys, it's nice to find some people with their heads on strait around here.

[Anon136]

Based on what? This seems to me a trap, with a few positive signs for the bulls (rally on volume, etc.), but in no way is the confirmation of a trend reversal. The speculative mania phase is definitely dying (for now), so "back to normal" means that huge spikes are followed by big correction, and big crashes are followed by huge bounces.

Everything is playing pretty much as expected, I think that even the biggest bears expected huge bounces on the way down. And we are definitely on a way down since April, 10th.

You're trying very hard to convince yourself this is a trap but you don't sound as convinced as you were before. I think it could very well be a trap, but the case for a trend reversal is getting stronger by the day. Sentiment seems much better now, Gox issues have subsided for now and confidence is returning. My initial thoughts were that we were going to see an epic bounce up into the triple digits and then a gradual fall again until we hit a new low of 55-60, but I'm getting more optimistic now which I admit is also kinda dangerous. My initial plan was to sell 50% of my bitcoins when we hit triple digits again, but now that we got there I am getting second thoughts and want to hold on to them. What if this is a trend reversal and we did hit bottom at 65? The smart thing to do is probably to just follow my initial plan, it's never wrong to take some profits when you can.

Nobody ever went broke taking profits

many many people went broke taking profits in the weimar republic.

[N12]

Declining profitability of mining presents a miner with three choices, stop mining OR continue to mine while selling most coins to pay for the marginal electricity consumed in mining OR mine at a loss and become a speculator.  Any earlier coins the miner may have hoarded are clearly separate and changes in mining profitability have no effect on decisions to hold or sell those coins.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The combination of ASICs, the block reward reduction to 25 (which immediately cuts in half the flow of new coins and artificially doubles the exchange rate) and a media fueled bubble have destabilized all this and we won't know a stable price until all those factors have faded away.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Excellent fundamental analysis, I tried to formulate the same thoughts here https://bitcointalk.org/index.php?topic=188829.msg1957530#msg1957530

I think it's key to comprehending this bear market.

[Spaceman_Spiff]

Declining profitability of mining presents a miner with three choices, stop mining OR continue to mine while selling most coins to pay for the marginal electricity consumed in mining OR mine at a loss and become a speculator.  Any earlier coins the miner may have hoarded are clearly separate and changes in mining profitability have no effect on decisions to hold or sell those coins.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The combination of ASICs, the block reward reduction to 25 (which immediately cuts in half the flow of new coins and artificially doubles the exchange rate) and a media fueled bubble have destabilized all this and we won't know a stable price until all those factors have faded away.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Isn't there some circular logic going on here?  You are saying unprofitable (or barely profitable) mining will cause selling and the price to drop, but then for your calculations you already assume a lower price to estimate their profitability in the future.  Probably has more to do with the timeframe since mining shouldn't be very profitable forever, but it makes the timeframe estimation a lot less sure, I think.

[lucas.sev]

Declining profitability of mining presents a miner with three choices, stop mining OR continue to mine while selling most coins to pay for the marginal electricity consumed in mining OR mine at a loss and become a speculator.  Any earlier coins the miner may have hoarded are clearly separate and changes in mining profitability have no effect on decisions to hold or sell those coins.

The overall effect of declining mining profitability is miming becomes much more like REAL METAL mining, today most mines operate on very narrow profit margins and sell ALL their metal immediately (or even as futures), they do not hoard and speculate in it because its too risky vs their narrow margin.  This is in fact a good thing because these narrow margin miners create a very very stable supply of new coins entering, every day your getting 144 blocks worth of coins being sold and the exchange rate will fluctuate only because of demand side changes.  That's the behavior we saw during the low volatility year of 2012.

The combination of ASICs, the block reward reduction to 25 (which immediately cuts in half the flow of new coins and artificially doubles the exchange rate) and a media fueled bubble have destabilized all this and we won't know a stable price until all those factors have faded away.

Doing some quick calculations on when an 1st Generation ASIC (~100 Mhash/J) becomes unprofitable to run (aka marginal costs only, ignore all hardware).  Assuming a decline to $30 for BTC and electricity at 0.15 per kWh difficulty would need to reach 440 million, roughly 17 times what it is now or 4 doublings, at present it seems to be doubling every 2 months so I'm predicting 6-8 months for first generation ASICs to be scrap metal.

Excellent fundamental analysis, I tried to formulate the same thoughts here https://bitcointalk.org/index.php?topic=188829.msg1957530#msg1957530

I think it's key to comprehending this bear market.

So we can expect price to double?

[Impaler]

Isn't there some circular logic going on here?  You are saying unprofitable (or barely profitable) mining will cause selling and the price to drop, but then for your calculations you already assume a lower price to estimate their profitability in the future.  Probably has more to do with the timeframe since mining shouldn't be very profitable forever, but it makes the timeframe estimation a lot less sure, I think.

$30 is my estimate of a firm bottom for what the demand side of BTC can provide independent of mining costs, if you believe in a different bottom or indeed any other price just substitute that in the calculation and you will get a different estimate for when ASICs become unprofitable.

[toddtervy]

Isn't there some circular logic going on here?  You are saying unprofitable (or barely profitable) mining will cause selling and the price to drop, but then for your calculations you already assume a lower price to estimate their profitability in the future.  Probably has more to do with the timeframe since mining shouldn't be very profitable forever, but it makes the timeframe estimation a lot less sure, I think.

$30 is my estimate of a firm bottom for what the demand side of BTC can provide independent of mining costs, if you believe in a different bottom or indeed any other price just substitute that in the calculation and you will get a different estimate for when ASICs become unprofitable.

I think the train's taking off, we might never see below $50.

[Spaceman_Spiff]

Isn't there some circular logic going on here?  You are saying unprofitable (or barely profitable) mining will cause selling and the price to drop, but then for your calculations you already assume a lower price to estimate their profitability in the future.  Probably has more to do with the timeframe since mining shouldn't be very profitable forever, but it makes the timeframe estimation a lot less sure, I think.

$30 is my estimate of a firm bottom for what the demand side of BTC can provide independent of mining costs, if you believe in a different bottom or indeed any other price just substitute that in the calculation and you will get a different estimate for when ASICs become unprofitable.

$30 sounds pretty good to me  .

[Raize]

Here's my contrarian argument against myself:
http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2010-09-15zeg2010-12-22ztgSzm1g10zm2g25zv

If you notice that chart, it's very similar to where we are now. Huge spike, then a fall, then a recovery looking similar to a "bear trap". Would you have invested at that point in time? GPU mining was just becoming a "thing", and software miners for GPUs were being sold. Yes, you read that right, people used to pay for software that could use GPUs to farm. For a brief time, they were the best miners, too.

Slush's pool had just started, with a whopping 600 mh/s, then rose very quickly to 4 GH/s. People were talking about how pools were going to be the "end" of Bitcoin, and ultimately lead to its demise. A large number of people were saying GPUs put control of Bitcoin into the hands of the "wealthy elite", and many lamented the end of a "democratic" block chain. Others were afraid of people using Bitcoin to donate to Wikileaks.

Anyway, this is all paralleled today. The equivalent of slush's pool is ASICMiner, the equivalent of GPUs are now ASICs, most people are worried about Bitcoin regulation.

Here's another chart from just two months later:
http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2010-09-15zeg2011-4-10ztgSzm1g10zm2g25zv

Whether you bought at either of these two price points, within two months you would never be able to buy at any of the prices listed here again. Even in November 2011, Bitcoin only briefly dropped under $2.

While I am pessimistic on $50 being the bottom. It seems pretty clear to me that if it passes what is likely to be a wall at $120, we might start seeing irrational gains again, and we may never see sub $100 prices for coin again if enough miners start buying more and more units. The future mining difficulty is still in question, which makes pricing a solid bottom very hard. Assuming a difficulty increase to even 400 million, it is still profitable to mine under $100. But what if a difficulty of 400 million is vastly underestimating where we are going? What if we are going to 1 billion difficulty or more?

Anyway, I still think we could easily go back under $50, but I am not *betting* on it, so that tells you how soundly I believe that.

[tclo]

but can't you see that bitcoin would be much better off it you all shut the fuck up and enjoy the ride?

We are selfish and care about ourselves and our bank accounts (and food and shelter) more than we care about Bitcoin.  I will admit that readily.

But I will start buying to hold "long-term" at around $40 or lower.  The trend is clearly downwards since the bubble with lower highs and lower lows. 

[PerfectAgent]

We are selfish and care about ourselves and our bank accounts (and food and shelter) more than we care about Bitcoin.  I will admit that readily.

I'll say though that the genius in the design of the protocol is that it takes that into account and takes advantage of it.

[hgmichna]

$30 is my estimate of a firm bottom for what the demand side of BTC can provide …

My personal estimate for the next low point in 2013 or 2014 has been $20 for a while. $30 would not surprise me, but single digits would also not surprise me.

Why? My model of the bitcoin market is that we have a layer of people who actually use bitcoin, people who pay with bitcoins for goods and services. But this layer is thin. I guess, if that were the whole bitcoin market, a bitcoin would carry a single-digit dollar price.

Above that we have a few layers of speculators. There are some long-termists who hold bitcoins for years, regardless of its highs and lows. We have some moderately slow traders. Finally we have the get-rich-quick crowd, some of which write their obvious "BUY!" posts here. They are trend-followers. (Buy, buy! The price is rising. - Sell, sell! The price is falling.) They create the bubbles, of which I expect to see a third one.

It is these latter ones that will now get increasingly nervous. As the price keeps falling, they will sell at a loss, in order to prevent an even greater loss. They will sell right down to the bottom, and that's how it should be, because they have no place in this market and are only damaging the bitcoin idea. Fortunately they will always bankrupt themselves. Unfortunately they will only make room for new speculators, until the entire world has learned its lesson. That will take a third bubble, and a fourth one, perhaps even a fifth one.

The problem for the better speculators, those who buy low and sell high and thereby stabilize the price, is to determine in advance where the price bottom after the last bubble will be.

I think it would be below $10, if it were not for the new, clueless speculators stumbling into the bitcoin market. They will start the next bubble before the previous one is fully deflated, and that is why it is difficult to predict the bottom price.

I am very interested in useful information and ideas that help to predict the bottom more precisely.

$20 - remember, you've read it here first, actually already months ago in some other threads.

[vokain]

$30 is my estimate of a firm bottom for what the demand side of BTC can provide …

My personal estimate for the next low point in 2013 or 2014 has been $20 for a while. $30 would not surprise me, but single digits would also not surprise me.

Why? My model of the bitcoin market is that we have a layer of people who actually use bitcoin, people who pay with bitcoins for goods and services. But this layer is thin. I guess, if that were the whole bitcoin market, a bitcoin would carry a single-digit dollar price.

Above that we have a few layers of speculators. There are some long-termists who hold bitcoins for years, regardless of its highs and lows. We have some moderately slow traders. Finally we have the get-rich-quick crowd, some of which write their obvious "BUY!" posts here. They are trend-followers. (Buy, buy! The price is rising. - Sell, sell! The price is falling.) They create the bubbles, of which I expect to see a third one.

It is these latter ones that will now get increasingly nervous. As the price keeps falling, they will sell at a loss, in order to prevent an even greater loss. They will sell right down to the bottom, and that's how it should be, because they have no place in this market and are only damaging the bitcoin idea. Fortunately they will always bankrupt themselves. Unfortunately they will only make room for new speculators, until the entire world has learned its lesson. That will take a third bubble, and a fourth one, perhaps even a fifth one.

The problem for the better speculators, those who buy low and sell high and thereby stabilize the price, is to determine in advance where the price bottom after the last bubble will be.

I think it would be below $10, if it were not for the new, clueless speculators stumbling into the bitcoin market. They will start the next bubble before the previous one is fully deflated, and that is why it is difficult to predict the bottom price.

I am very interested in useful information and ideas that help to predict the bottom more precisely.

$20 - remember, you've read it here first, actually already months ago in some other threads.

accurate analysis of demographics in play