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Author Topic: "Bitcoin's true value the cost to mine one"  (Read 137 times)
BillyBobZorton
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April 06, 2018, 06:21:14 PM
 #1

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

Bitcoin is a viable substitute for gold, but just better. How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

It's insane to assume that you have to wait until 2140 to reach "the moon". Bitcoin's features are the same irrespective of how many halvings away we are from that. The cost of mining one doesn't reflect it's true value. The hashrate is strong enough to be as safe as it gets to use a store of value. If anything, it shows me that it's insanely undervalued.
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April 06, 2018, 07:34:41 PM
 #2

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

Electricity cost is not equal in all countries, and because of that mining bitcoin is not equally profitable. Those who are confused by this, doesn't know enough about mining. And I guess it would be impossible to make global average price for mining, I don't see point for that.

How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

I am not sure if that is correct, those odds sounds a bit crazy if you ask me. No one would mine BTC if they would need 1 BTC to mine one back. Also, bitcoins cap is large enough if you ask me.

It's insane to assume that you have to wait until 2140 to reach "the moon". Bitcoin's features are the same irrespective of how many halvings away we are from that. The cost of mining one doesn't reflect it's true value. The hashrate is strong enough to be as safe as it gets to use a store of value. If anything, it shows me that it's insanely undervalued.

Maybe BTC will never reach "the moon" , everything is possible after all. Also you are correct about true value of BTC, but I'm not sure if its undervalued. I know for sure that it will stay as volatile, as long as people are looking on BTC as an investment and not for what it is.
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April 06, 2018, 08:00:48 PM
 #3

I agree with you, The cost of mining btc alone doesn't reflect it's true value, and probably it will not be mined till that date, its value depends on a lot of factors, mining cost is just one of them.

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April 06, 2018, 08:01:23 PM
 #4

Maybe I understand this wrong, but wouldn't bitcoin's price rise if demand for bitcoins remained the same and the cost to mine bitcoins increased? Why would the cost of mining a bitcoin correlate to the price of bitcoin? I think that is only true while the BTC price > Cost of electricity + Hardware + Time. It is totally possible that BTC price < Cost of electricity + Hardware + Time and the miners are producing bitcoins at a loss until they switch off their machines and the difficulty resets.

If anything the fact that we continue to mint new bitcoins puts downward pressure on the price of bitcoin.
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April 06, 2018, 08:31:29 PM
 #5

Maybe I understand this wrong, but wouldn't bitcoin's price rise if demand for bitcoins remained the same and the cost to mine bitcoins increased? Why would the cost of mining a bitcoin correlate to the price of bitcoin? I think that is only true while the BTC price > Cost of electricity + Hardware + Time. It is totally possible that BTC price < Cost of electricity + Hardware + Time and the miners are producing bitcoins at a loss until they switch off their machines and the difficulty resets.

If anything the fact that we continue to mint new bitcoins puts downward pressure on the price of bitcoin.

If demand for bitcoins remained the same, price would rise only to some extent. And that point depends on people willingness of paying. So as long as people are willing to buy bitcoin, new miners will join, and upkeep for mining will rise. When cost of mining reach certain point, people would leave like you said it would happen. Need for miners is limited, and because of that its not always profitable. And that is how I see whole picture of correlation between bitcoins price and mining.
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April 06, 2018, 08:39:22 PM
Last edit: April 07, 2018, 11:04:55 AM by Fenixsfeather
 #6

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

Electricity cost is not equal in all countries, and because of that mining bitcoin is not equally profitable. Those who are confused by this, doesn't know enough about mining. And I guess it would be impossible to make global average price for mining, I don't see point for that.
I agree, factor of location have big influence on mining, because of prise on electricity, time and you forgot about future taxes on miners. Yeah, im my opinion, in the near states regulation we will see taxes on minig. Goverment wouldn't ignore that opportunity to increase themself's budget. I don't how. Maybe price on electicity will cost more than for inhabitants. But also maybe the shortage of electricity can be a reason for that like in Canada.

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April 06, 2018, 08:42:23 PM
 #7

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

This is mainstream media's fault, lol. I have read an article somewhere that an expert 'claims' that the true value of bitcoin underlies within the mining costs, which is plainly wrong. That article even contained a graph of mining costs per country which is irrelevant data as it isn't constant and still there are sub-regions of a certain country wherein there are higher and lower electricity costs.

Bitcoin is a viable substitute for gold, but just better. How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

Uhhh, what? No one would ever want to mine if the mining costs is just equal to their profit. It's like you've exerted effort for nothing. Also, as for bitcoin's marketcap, $112 billion isn't a tiny figure compared to the multi-million dollar mining scene. If anything, the mining scene is a tiny industry if you compare it to bitcoin's total market cap.

It's insane to assume that you have to wait until 2140 to reach "the moon". Bitcoin's features are the same irrespective of how many halvings away we are from that. The cost of mining one doesn't reflect it's true value. The hashrate is strong enough to be as safe as it gets to use a store of value. If anything, it shows me that it's insanely undervalued.

The term "moon" is being used loosely most of the time. If you refer to the moon as simply having an insane amount of value accumulated over a short span of time, then it can be done with pure speculation and FOMO from the market, irregardless of the current mining costs and profits. Also, if you think that bitcoin's features are the main things to consider in getting bitcoin's true value, why would it be undervalued if you could have done the same with credit cards and such?

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April 06, 2018, 08:57:01 PM
 #8

Bitcoin will never have something that we can consider being the true value, just like Gold or any other asset in the world doesn't have anything like that. I personally base my 'actual' Bitcoin price on the bottoms that we mark in the charts, because these bottoms throughout the years have proven to be solid support levels, and that likely applies to the $6000 level in current times as well.

I personally don't even bother thinking about what the actual value of Bitcoin per its unit is, because it doesn't even make sense. It's personal for everyone what he considers Bitcoin to be worth, which depends on the needs of the buying party as well. Short term speaking, you might not consider current levels to be that much of an interesting entry point, but what if you need to quickly to put wealth into Bitcoin because banks are making life difficult for you? You'll gladly pay that specific price, which at that point means that need overrules the aspect of whatever Bitcoin's true value may be. If you take into consideration that everyone has its own needs and motives to buy Bitcoin, the 'true' price doesn't even matter.

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April 06, 2018, 09:39:24 PM
 #9

Why do some people think this is accurate?

It is not accurate simply because bitcoins are not consumed. With commodities like grain or oil, the cost of production does affect the price because the commodities are consumed and they must constantly be produced in order to maintain a supply. In contrast, bitcoins are not consumed and production is fixed.

On the other hand, the cost of mining a bitcoin depends on the price because of the way production is maintained at a predetermined rate regardless of the mining capacity.

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April 06, 2018, 10:01:38 PM
 #10

The cost of creating something does not equate to the value of that thing. For example, the cost of building a car is not equal to the value of that car. However, some people use the cost of mining as an indicator of the minimal price bitcoin can reach, assuming that in case that mining is not profitable for miners, they would stop injecting new coins in the market.


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Hydrogen
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April 07, 2018, 04:49:28 AM
 #11

"Bitcoin's true value the cost to mine one" Why do some people think this is accurate?

Markets and economies do not function with 100% efficiency, in a non-profit, sense where the cost of products equals the cost of manufacture. On a fundamental level, high profits could be correlated with high inefficiency. This old quotation by Lewis Mumford does a decent job of summarizing the vast majority of how markets and economies function:

Quote
The aim of industry is not primarily to satisfy essential human needs with a minimal productive effort, but to multiply the number of needs, factitious and fictitious, and accommodate them to the maximum mechanical capacity to produce profits. These are the sacred principle of the power complex. Not the least effort of this system is that of replacing selectivity and quantitative restriction by indiscriminate and incontinent consumption.

THE PENTAGON OF POWER, Lewis Mumford, 1970

It might be fair to say the production or mining of bitcoin and crypto currencies were initially designed to be efficient and provide coins to end users at a minimal cost in as highly efficient a manner as possible.

But of course, as industry becomes more prevalent the paradigm shift could be in favor of finding ways to make bitcoin production more inefficient and as the above quotation says "multiply the number of needs, factitious and fictitious, and accommodate them to the maximum mechanical capacity to produce profits". We might describe this in terms of miners finding ways to artificially increase transfer fees higher than necessary and also implementing ways to artificially congest network transaction traffic to achieve an identical effect.

There are mansions which might only cost $1 million dollars to build which are sold on real estate markets for $30 million. Price mark ups in real estate and elsewhere could be far worse in comparison to bitcoin. Unfortunately, we see little or no media coverage on this which could give people an inaccurate view of how things function in the real world in terms of markets.

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April 07, 2018, 04:58:06 AM
 #12

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

Bitcoin is a viable substitute for gold, but just better. How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

It's insane to assume that you have to wait until 2140 to reach "the moon". Bitcoin's features are the same irrespective of how many halvings away we are from that. The cost of mining one doesn't reflect it's true value. The hashrate is strong enough to be as safe as it gets to use a store of value. If anything, it shows me that it's insanely undervalued.

We keep your assumptions in mind then I am pretty sure the prices will keep rising upward only. Because with the time the mining operations are increasing and as well as the difficulty of network rising too. Due to this the cost of mining increasing too! If thats the calculation then the prices of bitcoin should never fall adn they should keep growing at the exponential rates!

Also, why do you think that prices drop when bad news comes out of the market and people dump the bitcoin by selling them? Isn't thats the pre reason for this and it is irrespective of the BTC-minign operation?

I assume its not about the mining. Its all about the how much money goes in and comes out plus the demand-supply relation.
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April 07, 2018, 04:03:40 PM
 #13

Bitcoin will never have something that we can consider being the true value, just like Gold or any other asset in the world doesn't have anything like that. I personally base my 'actual' Bitcoin price on the bottoms that we mark in the charts, because these bottoms throughout the years have proven to be solid support levels, and that likely applies to the $6000 level in current times as well.

I personally don't even bother thinking about what the actual value of Bitcoin per its unit is, because it doesn't even make sense. It's personal for everyone what he considers Bitcoin to be worth, which depends on the needs of the buying party as well. Short term speaking, you might not consider current levels to be that much of an interesting entry point, but what if you need to quickly to put wealth into Bitcoin because banks are making life difficult for you? You'll gladly pay that specific price, which at that point means that need overrules the aspect of whatever Bitcoin's true value may be. If you take into consideration that everyone has its own needs and motives to buy Bitcoin, the 'true' price doesn't even matter.

I know the "true value" idea is a subjective one, which is why im pointing out at how trying to establish that the objective value for Bitcoin is simply "what costs to mine one". The realistic answer would simply be, "what the next guy is willing to pay for it".

But in markets, we try to find an approximation for this "true value" even if within itself it's a vapid concept, so it's all about price discovery.

Similarly, "moon" is also a subjective value. For these that asked, for me "moon" means a more or less stable price cause due a massive marketcap, just like gold. Gold is stable because it's an huge force. When Bitcoin's marketcap is worth a couple $trillion we will not have people moving the price one tweet at a time. We need there to be a serious safe haven, and these that get in while it's still a crazy volatility ride will get insanely rich long term, by simple risk reward.
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April 08, 2018, 03:04:47 PM
Last edit: April 08, 2018, 05:46:48 PM by stompix
 #14

Why do some people think this is accurate?

Lack of knowledge.

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

Think oil.
Oil in Saudi  Arabia or Iraq is cheaper than that in Venezuela but on the markets the difference in negligible compared to that price.


Bitcoin is a viable substitute for gold, but just better. How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

Free market. It costs as much as one is willing to buy it for.
Do you think that all products costs based on how much energy is spent on them?

Gold is stable because it's an huge force. When Bitcoin's marketcap is worth a couple $trillion we will not have people moving the price one tweet at a time. We need there to be a serious safe haven, and these that get in while it's still a crazy volatility ride will get insanely rich long term, by simple risk reward.

Allow me to be pessimistic on this on.
We thought that volatility would end once we pass 1000, then when we passed 10 000 and I really doubt we would kiss goodbye 5% swings in a couple of hours once we reach 100 000.
Even at a few trillions the market will be still tiny, and it will take a lot more money to stop a whale unloading 40k BTC.
Where is all this fiat going to come from instantly to block the drop?

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April 08, 2018, 03:23:40 PM
 #15

Allow me to be pessimistic on this on.
We thought that volatility would end once we pass 1000, then when we passed 10 000 and I really doubt we would kiss goodbye 5% swings in a couple of hours once we reach 100 000.
Even at a few trillions the market will be still tiny, and it will take a lot more money to stop a whale unloading 40k BTC.
Where is all this fiat going to come from instantly to block the drop?

I don't now who thought that volatility would end past 1000 because that's nonsense to be honest. At 1000 a coin the marketcap is still tiny, so is at 10000 and at 100000... You need massive amounts to stop volatility in a 24/7 global market.

Gold is 6.7 trillion, you can't call that tiny anymore, and that is where Bitcoin should be at, since it's a better gold.

The fiat will come, there's too much fiat sitting in dumb places out there, and it will obviously not be instantly, this is a long term road with many bumps. Give it 10 years and we'll see.
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April 08, 2018, 03:52:45 PM
 #16

I agree with you, The cost of mining btc alone doesn't reflect it's true value, and probably it will not be mined till that date, its value depends on a lot of factors, mining cost is just one of them.
many factors affect value of bitcoin. especially is market and in it there is demand and quote price and the law is one of them because of the news circulating, so as you say the price of btc mining is not main factor

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April 08, 2018, 04:48:25 PM
 #17

It obviously isn't it's true value, Bitcoin's true value is way higher than cost of mining 1 unit. The main reason is it's network effect, and the fundamentals surrounding this fact. Bitcoin cannot be replicated, unless the one wanting to release the competition has a time machine to release it before Bitcoin is released, the circumstances are very unique, no matter how many "innovations" you add to the new coin.

Network effect is a very real thing. To put a comparative, not exactly the same but still relatable: Reason Google bought Youtube for a bunch of billions is not because Youtube is a very innovative technology, it's just a damn site to store videos, they bought it because it's network effect, which is a very valuable thing, and Bitcoin has the #1 network effect and I don't see this changing in our lifetimes.

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April 08, 2018, 04:57:41 PM
Last edit: April 08, 2018, 05:24:10 PM by mu_enrico
 #18

Why do some people think this is accurate?

The cost to mine 1 BTC varies a ton depending where you are at, so this would mean if you are from China the cost will be cheaper than in Canada for instance, but this is not all. There are many other variables.

So you would need to create a global average I guess, but even then, how is this accurate?

Bitcoin is a viable substitute for gold, but just better. How could 1 unit of Bitcoin be only worth it's cost to mine one (which by the way I think it's around the current price) when it's marketcap is so tiny?

It's insane to assume that you have to wait until 2140 to reach "the moon". Bitcoin's features are the same irrespective of how many halvings away we are from that. The cost of mining one doesn't reflect it's true value. The hashrate is strong enough to be as safe as it gets to use a store of value. If anything, it shows me that it's insanely undervalued.

I think people just like the idea of "fundamental value," so the mining cost will be the closest to BTC fundamental value
Well, that's because the network strength, technological advantage, and so on, cannot be valued with money (or just very difficult).

I agree with Roger Ver when he said that blockstream delay consumer penetration for years, so mooning will depend on the lightning network
If bitcoin remain slow and expensive, that may never happen



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April 08, 2018, 05:06:16 PM
 #19

I don't like the word "value". We shall think of "production cost" and "market price".

Now, if you look at an Apple Iphone or at a Ford Mustang, you'll see there's a substantial difference between the 2.

You may also note that production cost can vary depending of wages and labor regulations (think China versus the US), just like market price, because of local taxation, or sometimes the shop owner/dealer's appetite for money.

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mu_enrico
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April 08, 2018, 05:34:34 PM
 #20

I don't like the word "value". We shall think of "production cost" and "market price".

Now, if you look at an Apple Iphone or at a Ford Mustang, you'll see there's a substantial difference between the 2.

You may also note that production cost can vary depending of wages and labor regulations (think China versus the US), just like market price, because of local taxation, or sometimes the shop owner/dealer's appetite for money.

But Bitcoin is currency sir, not a product.. so as far i know, in business we use term "fundamental/intrinsic value" for assets
Many of investors often look for fundamental valuation of assets, here we have problem:
https://www.google.com/search?q=fundamental+value+of+bitcoin&pws=0
Bitcoin just cannot be valued with traditional valuation or they often said "bitcoin has no real value"



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