Mining Difficulty Dictates Price?

[BTCINVESTOR]

Have a look at the graphic below:



I used average price of BTC during each month since February 2013. I used Mt. Gox daily weighted prices.

Would love to hear back if there are any other resources where this subject is addressed. I realize that some have proposed that the price of bitcoin should never be higher than the cost to mine them which makes sense, but has anyone ever done an in-depth analysis of this across other commodities? Can we rely on the cost of mining as a good predictor of future BTC valuation?

Eager for some feedback.

[BTCINVESTOR]

Is this just old news or something?

[Sitarow]

Is this just old news or something?

It boils down to what is a better investment. Buying and holding btc or buying hardware and mining them...

At the present price for hardware it seems that buying btc is the winner for now.

Edit: at least from the perspective of maximizing your BTC holdings.

[xephyr]

Is this just old news or something?

It boils down to what is a better investment. Buying and holding btc or buying hardware and mining them...

At the present price for hardware it seems that buying btc is the winner for now.

Edit: at least from the perspective of maximizing your BTC holdings.

So why the affiliate link for mining hardware in your signature?

[KFR]

I think it's fair to say you're not the first person to have made this observation.  I believe it's been discussed quite a bit actually.

Here's a pretty recent discussion on the topic, which I thought covered things quite neatly:

https://bitcointalk.org/index.php?topic=68655.msg3831417#msg3831417

[BTCINVESTOR]

I think it's fair to say you're not the first person to have made this observation.  I believe it's been discussed quite a bit actually.

Here's a pretty recent discussion on the topic, which I thought covered things quite neatly:

https://bitcointalk.org/index.php?topic=68655.msg3831417#msg3831417

I appreciate pointing that out. Thank you!

[Beta-coiner1]

No one knows,but all have tried and wondered if there is a correlation.I think the very first would be when the rewards were halved to 25 many believe at the time it made BTC more rare hence a price increase,it is going to be interesting to see what happens when it reaches 12.5 in some years.

[Sitarow]

Is this just old news or something?

It boils down to what is a better investment. Buying and holding btc or buying hardware and mining them...

At the present price for hardware it seems that buying btc is the winner for now.

Edit: at least from the perspective of maximizing your BTC holdings.

So why the affiliate link for mining hardware in your signature?

Their are still viable options for hardware purchases.
I own a variety of ASIC hardware myself.

For those who wish to buy hardware I try to simplify things by giving them a breakdown and potential hardware vs network breakdown from all manufacturers that are shipping or have shipped.

https://docs.google.com/spreadsheet/ccc?key=0AmeuPljmUNHCdEpqX2RmMDFwemJyLURVUWFtZ3J3aGc&usp=sharing

Some people enjoy the hobby and wish to participate in securing the network and further decentralize the responsibility.

Eventually miners will be able to vote with their hardware as to what direction Bitcoin network protocol should follow with respects any hurtles that may present themselves down the road.

Third supporting well managed and successful companies will open the door to perhaps revolutionizing hardware development as we know it.

Example moving from 100% silicon wafers to silicon/carbon or 90% carbon solutions.

[cp1]

Actually the mining difficulty dictates pirates.  As difficulty goes up, the number of pirates goes down.

[GriTBitS]

its because miners control supply, why sell if you cant make ROI

[bitcon]

cant wait for the next reward halving

[GriTBitS]

its because miners control supply, why sell if you cant make ROI

Supply doesn't only include newly mined coins.

Yes fees and ppl that wanna take profits too. But also you have mom and pop that just bought their first coins or are looking to buy their first. Most ppl when they buy stock they never plan on selling it. And most mom and pop will treat this as a stock. Until they relize they can spend it. So I think that most new volume will come from new Highs or new Lows

[BTCINVESTOR]

Notice the interesting correlation between price in USD and bitcoin mining difficulty in millions. They are very similar. This could be a good metric for predicting the baseline price of bitcoin.

[cp1]

As the price goes up more people want to mine it, so the difficulty goes up.  The difficulty doesn't predict the price, it's the other way around.

[mp420]

As the price goes up more people want to mine it, so the difficulty goes up.  The difficulty doesn't predict the price, it's the other way around.

This.

Price is dictated by the market (supply and demand). Mining does not affect either (much).

[theonewhowaskazu]

It might also be said that a high difficulty (at least, originally) inspired more "smart money" investments, i.e, those who actually understand the protocol, because they know that it keeps their money safer. At this point I think difficulty is so high as to make that effect marginal, though.

[laris2]

As the price goes up more people want to mine it, so the difficulty goes up.  The difficulty doesn't predict the price, it's the other way around.

This.

Price is dictated by the market (supply and demand). Mining does not affect either (much).

I wouldnt say so. More difficult is to mine, the less money a person gets. If one of the person is able to sell less at a perceived moment of time then it will cause shortage of supply, thus driving the price up, and vica versa.
Tho I think that the mining difficulty increase is usually delayed, when we relate it to the price fluctuations.

[theonewhowaskazu]

As the price goes up more people want to mine it, so the difficulty goes up.  The difficulty doesn't predict the price, it's the other way around.

This.

Price is dictated by the market (supply and demand). Mining does not affect either (much).

I wouldnt say so. More difficult is to mine, the less money a person gets. If one of the person is able to sell less at a perceived moment of time then it will cause shortage of supply, thus driving the price up, and vica versa.
Tho I think that the mining difficulty increase is usually delayed, when we relate it to the price fluctuations.

Only people aren't able to get less. In fact, they're able to get slightly more if difficulty is increasing quickly. It just takes a lot more work to get that same amnt.

[cp1]

I wouldnt say so. More difficult is to mine, the less money a person gets. If one of the person is able to sell less at a perceived moment of time then it will cause shortage of supply, thus driving the price up, and vica versa.
Tho I think that the mining difficulty increase is usually delayed, when we relate it to the price fluctuations.

Maybe each person is getting less, but there's more people mining.  The supply is always going to be 25 blocks / 10 minutes (even slightly faster because of the difficulty increase lag).  (until it's 12.5 of course)

[theonewhowaskazu]

Hmm, I guess, more people mining right now means marginally more inflation now than expected, but less inflation sooner in the future, so that can potentially matter.