[CHART] Correlation Between Bitcoin Price and Difficulty

[aminorex]

If the difficulty rises, then miners will continue to mine at a loss, but hold their coins until they can sell at a profit, thus causing the price to rise due to lower supply.

I agree that this effect is possible, but even if 100% of the miners follow this rule (which I doubt is the case), newly mined coins are only a small part of the market and this will have only a small effect on the market at most.

price is set by the marginal supply and demand.  mined coins are the only source of new coins, and determine the marginal supply cost.

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[mestar]

No it isn't. He did the same thing as taking bunch of numbers dividing them by one and saying, "see nothing happened".  You guys forget that there is a market for bitcoin beyond only those who mine.  Miners control difficulty first and then price and non-miners control price first and then difficulty.

I guess you missed the point.  I created the exact situation that is happening in reality. (Also, I don't remember dividing anything by one.)

That magical being is called Moore's law, and its current nickname is ASIC. 

Look what happened in the period when difficulty went from 0.6 million to 2.3 million: price fell from $1200 to $800.   Should we conclude that increasing difficulty actually causes the price to fall?

Or should we say that the situation that the miners' costs of creating one bitcoin are 10% of one bitcoin, so difficulty should go up?  It will go up because new mining hardware will be created and turned on.  When the price fell from 1200 to 800, it just means cost went up from 10 to 15%, so, still more hardware can be, and will be, added.

I can safely predict that difficulty will continue to rise until the mining cost (running costs) get to 50%, and at that point it can still rise, but not much.


So, you say that difficulty causes price.  We know that in the next 10 days difficulty will go up, perhaps 30%.  Based on this, and your model, where will the price go? 

[Newmine]

No it isn't. He did the same thing as taking bunch of numbers dividing them by one and saying, "see nothing happened".  You guys forget that there is a market for bitcoin beyond only those who mine.  Miners control difficulty first and then price and non-miners control price first and then difficulty.

I guess you missed the point.  I created the exact situation that is happening in reality. (Also, I don't remember dividing anything by one.)

That magical being is called Moore's law, and its current nickname is ASIC.  

Look what happened in the period when difficulty went from 0.6 million to 2.3 million: price fell from $1200 to $800.   Should we conclude that increasing difficulty actually causes the price to fall?

Or should we say that the situation that the miners' costs of creating one bitcoin are 10% of one bitcoin, so difficulty should go up?  It will go up because new mining hardware will be created and turned on.  When the price fell from 1200 to 800, it just means cost went up from 10 to 15%, so, still more hardware can be, and will be, added.

I can safely predict that difficulty will continue to rise until the mining cost (running costs) get to 50%, and at that point it can still rise, but not much.


So, you say that difficulty causes price.  We know that in the next 10 days difficulty will go up, perhaps 30%.  Based on this, and your model, where will the price go?  

Looks like price is going up after the difficulty went up.

And I am sure you will say it's just an anomaly. A fluctuation to other factors.

Well I bet if you pull a 5 year chart with 10 day bars of price and draw a trend line, and then do the same with difficulty, they will look something like this:   /

[wickedgoodtrader]

Listen here boys and girls:

Mining Profitable most certainly has an effect on the price of BTC.

If there's 100 miners getting 3600 coins a day and I'm interested in getting some btc but I have to pay $800 a piece for them OR I could buy a miner for $2000 and earn $4000 worth of BTC over the next couple months. What would be the smart play? Obv I'm going to spend my money on miners, not bitcoin. SO my money DID NOT funnel into bitcoin. Money funneling into BTC is what makes it rise.

Then the next scenario is mining is tapped out and there is 1 million people mining and you want some BTC and could pay $800 a piece for them OR buy a miner for $2000 but you will only earn $1000 of that back in the next 6 months and then the electricity will cost more to run it then you earn. What would be the smart play? Obv I'm going to buy bitcoin on an exchange.

So does it not make sense that mining profitability would have a direct influence on the price of BTC?

The less profitable BTC is to mine, the better it's chances are to rise.

If BTC is super profitable to mine, it will stop going up until it makes more sense to buy BTC then buy a miner. Many of these miners are also purchased with BTC who's producers then sell the btc on the market which also adds more downward pressure.

[dissident]

Because bitcoin is still quite top heavy with lots of coins in few hands high difficulty is no guarantee of high prices.. in panic situations people will sell stock at a loss to avoid further losses.  There's no guarantee that won't happen here. Actually a plunge to $400 would be healthy and shake out the weak hands while introducing potential new investors such as myself. Not buying and holding at 800.. there are numerous alt coins I'd rather hold at this point. Bitcoin is the default coin that people who trade alt currencies ultimately hold when selling at the moment however.  Exchanges like cryptsy don't let you sell into "USD" yet.

[wickedgoodtrader]

Yes high difficulty is no guarantee of anything. BTC can crash at any moment.

BUT BTC's ability to rise is severely hindered while mining is super profitable. Once the profitability gap closes, it has the chance to start rising again.