Capital leaving the market?

[wndrbr3d]

I was thinking today while looking at the steady downward trend of prices over the last week or so. I began to wonder if this wasn't a trend due to the influx of miners.

My theory is that if you look at hashing rate over the last 60 days, you see a considerable jump in hash rate meaning people either joined up or made the monetary investment in mining for bitcoins. These people aren't using bitcoins as a source of exchange for services or goods, but as a method to extract capital from the current bitcoin market.

Because there isn't a healthy market for bitcoin purchases (some would argue this, but my opinion is that they're all still in their infancy), there's no capital flowing into the market (aside from speculators) and capital is leaving the market at a faster rate as miners look to make a return on their investment.

So my guess is that we'll continue to see a steady downward trend in prices as miners continue to cash out their earnings, until you see another large news story hit/eCommerce catch on where people would pump capital into the market to begin driving prices back up.

Thoughts? 

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[bitebitebite]

 Looks to me like one or two big players (from the single spikes) that caused the reductions in pricing in the last seven days. Cashing out to buy back in at a lower rate is my uneducated theory.

[zby]

I was thinking today while looking at the steady downward trend of prices over the last week or so. I began to wonder if this wasn't a trend due to the influx of miners.

My theory is that if you look at hashing rate over the last 60 days, you see a considerable jump in hash rate meaning people either joined up or made the monetary investment in mining for bitcoins. These people aren't using bitcoins as a source of exchange for services or goods, but as a method to extract capital from the current bitcoin market.

Because there isn't a healthy market for bitcoin purchases (some would argue this, but my opinion is that they're all still in their infancy), there's no capital flowing into the market (aside from speculators) and capital is leaving the market at a faster rate as miners look to make a return on their investment.

So my guess is that we'll continue to see a steady downward trend in prices as miners continue to cash out their earnings, until you see another large news story hit/eCommerce catch on where people would pump capital into the market to begin driving prices back up.

Thoughts? 

But you do understand that the hash rate can influence the supply of bitcoins only temporarily?   When it increases the difficulty follows to ballance it.

[FooDSt4mP]

I think he's saying the new miners are cashing more of their coins.  To me, it just looks like a normal consolidation after a big run up.  Give it a few weeks for all the new players to get their heads wrapped around it and we'll head back up.

[Stephen Gornick]

So my guess is that we'll continue to see a steady downward trend in prices as miners continue to cash out their earnings, until you see another large news story hit/eCommerce catch on where people would pump capital into the market to begin driving prices back up.

Yes, the supply of 8,300 BTC over the past 24 hours is enough to suppress market prices.

At about $15.5/BTC that means that over the same time there was over $125K of hoarding that occurred, or that there was $125K USD worth of fund inflows, or that there was some combination of the two.  If there was no hoarding, that means there would be nearly $1 million a week of inflows required to keep the market price from declining.

Though I only have anecdotal evidence to support this argument, I believe a lower market rate actually increases supply as well.  

Miners got used to the higher income that they were earning previously when the market price was higher and at the same time the difficulty was lower.

At the same time that those two factors have turned negative for the miner, the electric bills and credit card payments have not dropped whatsoever and have increased.  

When prices drop, miners are less likely to hoard -- which increases the supply, which causes prices to drop, and on and on.  Yes, we enter a negative feedback loop.

That will continue until there is some reason(s) for the demand for bitcoins to increase.  

While many look at bitcoin's market price and see this roller coaster ride of price volatility, others look at bitcoin as this innovation that remains rock solid and continues growing.  

In the past week there were four new exchanges that opened or added new markets.  There were many new merchants that have started to accept bitcoins.  There were two new methods introduced for accepting bitcoins when selling goods online.  There were some exciting developments in mobile -- including using the new voucher code payment option from Mt. Gox.   I could go on.

In other words, looking in the rear view mirror won't show you where this ride is headed.

[Vandroiy]

I don't think all miners sell. But at current volumes, yes, they play a role. Remember that official volume can be much lower than money influx! Coins and dollars are often traded multiple times.

A more important question is the USD influx though. Fluctuations in that have a much larger effect than miners can do.

The largest factor, however, is probably BTC hoarders. If just a fraction of these sell, both miners and buyers look like dwarfs. This is the reason I wouldn't predict things necessarily remaining "steady". Volatility and especially possible price hikes are what motivates people to hold quite some value in BTC. Should they for some reason cease to expect much buying power incoming, price could face a very sudden drop. Similarly, if they do see more buying, they might not sell, creating a positive feedback loop once again: with rising prices, there is no fear causing sales, and buyers see immediate profits.

That model makes things look fairly unstable to me. The slow decline might actually be the best way out, since it reduces the potential size of sudden price drops.