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Author Topic: Price vs Difficulty  (Read 1969 times)
jed
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February 28, 2011, 10:02:10 PM
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I get the impression that many people think that price of BTC is somehow influenced by difficulty.
I actually I don't agree that difficulty going up will increase the value of coins.
The only thing that will increase the value of coins is more actual users.
Miners don't really increase the value of BTC. And difficulty going up just means there are more miners.
It is a misconception is that difficulty drives price. Price is as always determined by supply and demand.
And difficulty doesn't effect the supply of coins since the rate of new coins is unrelated to the difficulty. So it isn't a factor in price

But as price changes difficulty does change. Since as price goes up it attracts more miners.

Price determines difficulty. Not the other way around.

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ribuck
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February 28, 2011, 10:24:50 PM
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You're absolutely right.

Interesting subject for a first post (unless you're that Jed, of course).
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February 28, 2011, 11:59:30 PM
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It is a misconception is that difficulty drives price. Price is as always determined by supply and demand.
And difficulty doesn't effect the supply of coins since the rate of new coins is unrelated to the difficulty. So it isn't a factor in price

Very nice observation. In theory it's true, but I don't fully agree. Most sellers currently are miners. And when selling they set price that they think is profitable for them.

Variance is a bitch!
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March 01, 2011, 12:04:54 AM
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Very nice observation. In theory it's true, but I don't fully agree. Most sellers currently are miners. And when selling they set price that they think is profitable for them.

Considers: 300 bitcoin per hours. In a 24 hours period, 7,200 BTC are generated. That mean that the market must move 7,200 BTC a day.

Graph that against exchange charts and we get an estimate.

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March 01, 2011, 01:19:01 AM
 #5

And difficulty going up just means there are more miners.
It is a misconception is that difficulty drives price.

But as price changes difficulty does change. Since as price goes up it attracts more miners.
Price determines difficulty. Not the other way around.



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March 01, 2011, 01:20:07 AM
 #6

It is a misconception is that difficulty drives price. Price is as always determined by supply and demand.
And difficulty doesn't effect the supply of coins since the rate of new coins is unrelated to the difficulty. So it isn't a factor in price

Very nice observation. In theory it's true, but I don't fully agree. Most sellers currently are miners. And when selling they set price that they think is profitable for them.

The can set whatever price they want, but only prices that people are willing to pay become the actual price.

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March 01, 2011, 01:23:39 AM
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Thanks for the clarification. I guess this means we’ll see a slowdown in the uprise of the network’s power and difficulty rate for some time now.
comboy
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March 01, 2011, 04:05:05 PM
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Very nice observation. In theory it's true, but I don't fully agree. Most sellers currently are miners. And when selling they set price that they think is profitable for them.
Considers: 300 bitcoin per hours. In a 24 hours period, 7,200 BTC are generated. That mean that the market must move 7,200 BTC a day.

I don't think it must. I mine, but I don't sell.

Btw, I think I just found a chain that was missing in my head. Here it is:

If you want to have bitcoins, you can buy them, or you can mine them.

That's basically it. Verbose version:
Having this choice, you could also hire somebody to mine it for you. But either way, you have to spend money on mining or on buying. If mining gets more expensive, then less people will go for the second option. So that creates more demand, and as you noticed supply is constant, therefore it should push price up.

Variance is a bitch!
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March 01, 2011, 05:18:04 PM
 #9

Very nice observation. In theory it's true, but I don't fully agree. Most sellers currently are miners. And when selling they set price that they think is profitable for them.
Considers: 300 bitcoin per hours. In a 24 hours period, 7,200 BTC are generated. That mean that the market must move 7,200 BTC a day.

I don't think it must. I mine, but I don't sell.

Btw, I think I just found a chain that was missing in my head. Here it is:

If you want to have bitcoins, you can buy them, or you can mine them.

That's basically it. Verbose version:
Having this choice, you could also hire somebody to mine it for you. But either way, you have to spend money on mining or on buying. If mining gets more expensive, then less people will go for the second option. So that creates more demand, and as you noticed supply is constant, therefore it should push price up.

Even if a miner keeps them "the market" is still absorbing them because the miner is part of the market. And you aren't going to keep them for ever anyway (I assume), so there will be a day with more new coins offered than average in the future.

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comboy
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March 01, 2011, 06:14:39 PM
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If you want to have bitcoins, you can buy them, or you can mine them.

That's basically it. Verbose version:
Having this choice, you could also hire somebody to mine it for you. But either way, you have to spend money on mining or on buying. If mining gets more expensive, then less people will go for the second option. So that creates more demand, and as you noticed supply is constant, therefore it should push price up.
Even if a miner keeps them "the market" is still absorbing them because the miner is part of the market. And you aren't going to keep them for ever anyway (I assume), so there will be a day with more new coins offered than average in the future.

And what if miner keeps them until supply drops?

Variance is a bitch!
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