ASICs are the reason the price is dropping, and it will not stop.

[ecliptic]

Nature abhors a vacuum

Economics abhors a magic machine that prints money.

Here's what the network will look like at the end of 2013.  Here's what the exchange rate will be set (forced) to by ASICminer and the few others fighting over ASICminer's scraps dumping their coins desperately trying to claw their way to make ROI

Incoming hashrates:

ASICminer = 800 - 1000 TH
Avalon Chips = 300 TH
Avalon Batch 2 = 30 TH
KNCMiner=  200 - 400 TH
BFL = 100 - 1000 TH

Hash rate : 1430 TH/sec - 2730 TH/sec

Difficulty : 203396803 - 388302987


If ROI is fast (i.e. meets 100% ROI in less than a year) because exchange rate is good, difficulty will go up to compensate as people want to buy magic money making machines

if exchange rate is sane, difficulty will not go up because ROI is normal, i.e. one year.  This is what is happening now.  This is what will continue to happen.  So let's see what the exchange rate will be to make ROI sane @ 1 year


Marginal rate for plebs to buy hardware (KNC miner) : 17,500$ per TH/sec.

Price of BTC if set by plebs

Low diff: 49$
Max diff: 93$

Marginal rate for ASICminer to buy hardware : <10,000$ per TH/sec.  We'll be conservative and use 10,000$.  In reality it's probably closer to 5,000$, which means halve these numbers.

Price of BTC when set by ASICminer

Low diff: 11$
Max diff: 21$


Asicminer controls the price of bitcoin.  They are the reason the price has dropped.  It is impossible for anyone to get ANYWHERE near their level of efficiency except the ASIC designers themselves.  All of who currently charge an order of magnitude more for their chips than they actually pay for them.  ASICminer can get their chips for pennies on the dollar compared to you, and pays next to nothing for their industrial electricity.

There is nowhere near enough demand to buy coins to make up for the massive amount mined and dumped on a constant basis.  The exchange rate will continue to plummet until the value of dumped coins actually meets the amount of money flowing in for goods and services (practically non-existant at this time.)

And as the price drops nobody who isn't an idiot will consider holding coins as an investment

TL;DR - Unless YOU are ASICMiner, or you got an ASIC already (Avalon Batch #1) - You are screwed.  No, don't buy coins either, the price is going to keep dropping.

Oh, bonus points.  They EASILY have enough hardware to 51% the network.  They could break 75%.

[ecliptic]

reserved

[mvidetto]

Not sure where you're getting these numbers from but the hash rate will be much higher than that considering that 400 TH is only 1k jupiters, and knc probably has atleast 1k jupiters and 1k saturns on order and then some.

[Wagner2014]

What is the supply of new bitcoins created each day/month/year?

Can you compare this with the amount of coins traded each day/month/year?

How do the numbers compare with grant of stock options and insider selling on 'stocks'?

[ecliptic]

Not sure where you're getting these numbers from but the hash rate will be much higher than that considering that 400 TH is only 1k jupiters, and knc probably has atleast 1k jupiters and 1k saturns on order and then some.

Yes, only the avalon chips are really easy to predict (since you can see all the BTC that went to the address) so the rest is kind of a guessing game which creates a large range

however as you can see, with the insanely cheap marginal cost that ASICminer has, the $/BTC range drops

[ecliptic]

What is the supply of new bitcoins created each day/month/year?

Can you compare this with the amount of coins traded each day/month/year?

How do the numbers compare with grant of stock options and insider selling on 'stocks'?

25 coins per block, 6 blocks per hour, 24 hours per day = 3600 coins per day

3600 coins per day * 70$/coin = $252,000 of inflation (printed money) per day at the current exchange rates

The market couldn't bear the 100$+ exchange rate (aka $360,000+ per day) so it is readjusting to account for it.

Can you compare this with the amount of coins traded each day/month/year?

I don't have the numbers offhand, but trading volume has fallen dramatically with MtGox troubles and elsewhere.

The bigger problem  is this : the vast majority of people bought BTC because they thought it would go up, that it was an investment.  As the price drops, that becomes less and less true.

[meh32123]

Asics are no Asics, always 3600 coins a day, until the next halfing...

[ecliptic]

Asics are no Asics, always 3600 coins a day, until the next halfing...

People liquidiated tens of milions of $ to buy asics.  They need that money back.  

GPU miners actually held coins, and they were fighting the price of electricity which placed a cap on difficulty.  GPU miners on several occasions turned off their gpus because the price fell and it cost them money to mine

ASICs being so much insanely efficient, even at the max difficulty, electricity costs are only a few % of revenue.

ASICs never turn off.  The difficulty would have to be 100x higher for electricity costs to be more than revenue.  or the exchange rate would have to be insanely low -- like single digits.

The issue is that ASICminer is a company designed to make $, they don't care about bitcoin, they don't want to hold it.  and they can easily muscle everyone else out, and unless they stop selling, $:btc will not go up.  They are fighting a war on the marginal costs and benefits versus everyone else, and nobody can compete.

What do you think would have happened if every single coin that was mined over the last 6 months was sold?  Price would have never exceeded 50$ or so.

[mgio]

Remember when people said that rise in hashrate caused a rise in price?

Now everyone is saying the opposite.

The reality is the hashrate has no effect on price whatsoever!!

[ecliptic]

Remember when people said that rise in hashrate caused a rise in price?

Now everyone is saying the opposite.

The reality is the hashrate has no effect on price whatsoever!!

You assume all miners have the same intention of coins.

GPU miners held coins.

ASIC miners sell coins.

The market is so small that the 3600 coins per day mined has a massive effect on it.

[ecliptic]

Also the whole "hashrate vs price" argument only applies when it was straight GPU miners.  That was a completely different ballgame, since

1. costs to entry were an order of magnitude lower (if not outright FREE)
2. cost of electricity was very, very significant.
3. marginal costs of hardware were the same for EVERYONE.  
(It was an even playing ground, since AMD was the one who made the chips and charged an equal middle-man fee to everyone.)

[Wagner2014]

What is the supply of new bitcoins created each day/month/year?

Can you compare this with the amount of coins traded each day/month/year?

How do the numbers compare with grant of stock options and insider selling on 'stocks'?

25 coins per block, 6 blocks per hour, 24 hours per day = 3600 coins per day

3600 coins per day * 70$/coin = $252,000 of inflation (printed money) per day at the current exchange rates

The market couldn't bear the 100$+ exchange rate (aka $360,000+ per day) so it is readjusting to account for it.

Can you compare this with the amount of coins traded each day/month/year?

I don't have the numbers offhand, but trading volume has fallen dramatically with MtGox troubles and elsewhere.

The bigger problem  is this : the vast majority of people bought BTC because they thought it would go up, that it was an investment.  As the price drops, that becomes less and less true.

About 2.3 million coins were traded in the last 30 days if my calculations are correct (as per Bitcoin Charts).

3,600 x 30 = 108K new coins.

So,

2,300,000 vs 180,000

Much less than 10%. It's not insignificant, but only one factor in the decline. Not all new coins will get traded either.

[ecliptic]

What is the supply of new bitcoins created each day/month/year?

Can you compare this with the amount of coins traded each day/month/year?

How do the numbers compare with grant of stock options and insider selling on 'stocks'?

25 coins per block, 6 blocks per hour, 24 hours per day = 3600 coins per day

3600 coins per day * 70$/coin = $252,000 of inflation (printed money) per day at the current exchange rates

The market couldn't bear the 100$+ exchange rate (aka $360,000+ per day) so it is readjusting to account for it.

Can you compare this with the amount of coins traded each day/month/year?

I don't have the numbers offhand, but trading volume has fallen dramatically with MtGox troubles and elsewhere.

The bigger problem  is this : the vast majority of people bought BTC because they thought it would go up, that it was an investment.  As the price drops, that becomes less and less true.

About 2.3 million coins were traded in the last 30 days if my calculations are correct (as per Bitcoin Charts).

3,600 x 30 = 108K new coins.

So,

2,300,000 vs 180,000

Much less than 10%, not insignificant, but only one factor in the decline. Not all new coins will get traded either.

Traded for USD?  I'm not talking about BTC<->BTC.  We're talking about people buying coins with $.  It sounds like 2.3M were the number of transactions on the blockchain, which is a meaningless number.

and even USD -> BTC doesn't mean much if you can just reverse it. What we need is the amount of $ flowing in, but nobody knows that except Gox

[Wagner2014]

^ Volume #s estimated from here:

http://bitcoincharts.com/markets/

[ecliptic]

I would not be at all suprirsed to find out that the majority of USD going into BTC was just to purchase ASICs (Avalon chips, Avalon Batches, their assembly, etc).

Since the market is so grim, nobody wants to buy those anymore.  The transient money flowing in (just to buy miners) stops, and $:BTC falls because it was artifically high due to the few select vendors (Avalon, etc) only accepting bitcoins

this is also why asicminer requires BTC to buy his hardware.

It forces you to buy his coins at a higher price, and then he sends you hardware.. which is less and less of a good idea as the exchange rate falls when nobody is buying mining hardware

tl;dr - bitcoin only used to buy bitcoin miners.  vicious circle

[crumbs]

ASICs are made & bought with one goal in mind: Profit.  If those rigs are profitable in dollars, it's stupid for the manufacturers to sell them.  If you have something guaranteed to make you 2 dollars by tomorrow, you don't sell it for a dollar today.  Not unless you're strung & need a fix.  So, unless ASIC manufacturers are junkies or fools, they're selling their rigs because:
A.  They know the rigs won't recoup their cost in BTCBTCBTC with the number of them on the market & accompanying growth in difficulty.
B.  They know the rigs will recoup their cost in BTCBTCBTC, but by that time the value of BTCBTCBTC will fall, so the $$$ cost won't be recouped.

Not sure what the other alternatives are, considering no one seems to need a fix.

[ecliptic]

ASICs are made & bought with one goal in mind: Profit.  If those rigs are profitable in dollars, it's stupid for the manufacturers to sell them.  If you have something guaranteed to make you 2 dollars by tomorrow, you don't sell it for a dollar today.  Not unless you're strung & need a fix.  So, unless ASIC manufacturers are junkies or fools, they're selling their rigs because:
A.  They know the rigs won't recoup their cost in BTCBTCBTC with the number of them on the market & accompanying growth in difficulty.
B.  They know the rigs will recoup their cost in BTCBTCBTC, but by that time the value of BTCBTCBTC will fall, so the $$$ cost won't be recouped.

Not sure what the other alternatives are, considering no one seems to need a fix.

You're forgetting that selling hardware is legally, financially, and technically much, much dimplier than operating a miner which could conceivably by an international money transmitter, have to go through AML laws, all that bullshit.

Selling chips is a significantly safer, simplier and better way to make money.  And FAR less risk, even just economically speaking.  Avalon makes >1000% profit on every chip they sell

Also, they'd have to compete with ASICminer, who has 1000 TH/sec coming online by the end of 2013.  Not easy to do.

[Coinseeker]

Very interesting thread.  Makes me wonder why people, other than those who have sunk thousands into mining rigs, hold tight to the whole mining process at all.  Premine -> Consensus -> Problem solved.

[ecliptic]

Very interesting thread.  Makes me wonder why people, other than those who have sunk thousands into mining rigs, hold tight to the whole mining process at all.  Premine -> Consensus -> Problem solved.

Are you suggesting there's a better method than mining?  It's like democracy, it's the best of all available options, even if it's shit.

I'd argue the only better way is to use an algorithm that would somehow be inherently low barrier to entry and harder to centralize, maybe like scrypt, but preferably CPU only or something

[crumbs]

ASICs are made & bought with one goal in mind: Profit.  If those rigs are profitable in dollars, it's stupid for the manufacturers to sell them.  If you have something guaranteed to make you 2 dollars by tomorrow, you don't sell it for a dollar today.  Not unless you're strung & need a fix.  So, unless ASIC manufacturers are junkies or fools, they're selling their rigs because:
A.  They know the rigs won't recoup their cost in BTCBTCBTC with the number of them on the market & accompanying growth in difficulty.
B.  They know the rigs will recoup their cost in BTCBTCBTC, but by that time the value of BTCBTCBTC will fall, so the $$$ cost won't be recouped.

Not sure what the other alternatives are, considering no one seems to need a fix.

You're forgetting that selling hardware is legally, financially, and technically much, much dimplier than operating a miner which could conceivably by an international money transmitter, have to go through AML laws, all that bullshit.

I thought Asicminer was mining online already -- so the expertise & legal liability's there already, scaling doesn't seem to be much of a problem (if you're printing $$$, you're f8cked about the same if you're busted for 100,000 or 100 mil.)
 

Selling chips is a significantly safer, simplier and better way to make money.  And FAR less risk, even just economically speaking.  Avalon makes >1000% profit on every chip they sell

True, once the r&D & tooling up's done, it's all profit.  I think you've missed my point.  Maybe not.

Also, they'd have to compete with ASICminer, who has 1000 TH/sec coming online by the end of 2013.  Not easy to do.

Thought they were already up & mining?