Miners running costs must pass trough exchanges - this limits the Bitcoin price

[mestar]

OP assumes every miner needs to offset his costs. I can only speak for myself, but mining was simply my way of purchasing Bitcoins. I had a certain amount of fiat which I wanted to convert into Bitcoin and I purchased mining gear (GPUs at the time) and then spent the rest on electricity. When the fiat ran out, I sold the hardware directly for Bitcoins.

So... I mined and never put any downward pressure on the exchanges. Quite the opposite, I removed (through evil hoarding) coins from circulation.

If a miner wants to cover his running costs of mining, he can do two things: 
-sell part of his mined coins
-pay the bills himself

In both cases, the same amount of fresh cash is needed.  In your case, you decided to pay the bills yourself.

To grasp the total "downward pressure" that miners put on the exchanges, one would have to know the financial situation and intentions of every Bitcoin miner, which is quite impossible.

We would also have to know the price of electricity for each miner. 

However, sometimes total numbers are easier to estimate.  For example, we know that the total electricity used can't be more than 3600 BTC daily.  We know this because people are not stupid.

We also know that it can't be 360, at least not for long, because, then you have a magic machine that takes 1 dollar of electricity and turns it into 10 dollars, with no other inputs.  Everyone would want this money printing machine, and soon your 1 dollar of electricity will turn into 1.1 dollar.  Mining can never be profitable for long, because, free money.  And soon, trough the magic of ebay, all the hardware will move to the regions where electricity is cheaper.

[cp1]

You're expecting everyone to be reasonable, which is a bad assumption.

[johnyj]

I had a poll before, you can see that more than half of the miners hold their coin at least for a year
https://bitcointalk.org/index.php?topic=296264

And for traders, similar distribution
https://bitcointalk.org/index.php?topic=295753.0

[An amorous cow-herder]

I had a poll before, you can see that more than half of the miners hold their coin at least for a year
https://bitcointalk.org/index.php?topic=296264

Would be interesting to see if that distribution has changed due to price rising, when the price was 100ish i only sold half the mined coins, now i sell all.

And for traders, similar distribution
https://bitcointalk.org/index.php?topic=295753.0

And the first answer there indicates that price of BTC heavily influences that decision.

I wont cash out unless bitcoin

A: Has impending doom
B: Has reached >$1,000.

But anyway, those are figures that can be used for calculation. So, assuming 30% of the freshly minted coins are sold that equates to roughly 32k coins being sold per month, or, at current prices about $30M. Gox is responsible for 20% of the BTC trades currently, assuming the fresh coins get sold evenly that would mean 6k BTC being sold on Gox, which would cause the price to slip from 952 to 848 within a month.
That is assuming no new speculators ofc.

[aminorex]

Miners running costs must pass trough exchanges and this will always be a downward pressure on the Bitcoin price.  Why must costs go trough the exchanges?  Because miners must pay their bills in currencies other than Bitcoins.
...
Also, when somebody says that Bitcoin can go up to $100,000 per Bitcoin (as Max Kaiser did), this means that there will be perhaps $200 million fresh money daily needed to prop up the price.   So, we can safely say that Bitcoin will never be that expensive.

Actually, I can pay bills with bitcoin, and now I can even pay taxes with bitcoin, thanks to snapcard.  Your leading assumption requires reassessment in the present environment.  You should also remember the halving in 2016 and 2020.

I'd be interested to see a blockchain analysis of the turnover rate of new coins.  That would provide an evidence-based assessment of exchange stability.

Of course price stability does not strictly depend on marginal demand at exchange.  PQ=MV.  Even if no fiat inflows, as long as PQ/V grows proportionately to issuance, prices will be approximately stable.

[Impaler]

I'm inclined to believe the rate of liquidation is even lower then 30% given the way the market moves and how tight it has become, Gox generally has a coin depth equal to ~3-6 days worth of mined coins now a days.  A poll on the forums may be missing large 'institutional' miners that I'd suspect to be even more holding oriented then the forum visiting and poll taking membership.

Ultimately a block-chain analysis would be the ideal way to answer the question as it's possible to know when coins move through an exchange you could find out the average period that coins wait and what fraction move and even if they move in response to market swings.  I would not be surprised if smart market watchers already do this but so far I've seen nothing in the more academic analysis papers about answering this rather vital question.

[OldGeek]

I haven't seen this mentioned so I'll just throw it out for consideration:

It seems likely that the income from large scale miners, the fees from the biggest exchanges, and the charges by the large mining pools, will not be sold on any exchange.  The most likely assumption is that they are selling to big buyers over the counter.  These 'investors' don't intend to sell in the short term.

Net effect (given demand):  upward pressure on prices.

[Holliday]

So... I mined and never put any downward pressure on the exchanges. Quite the opposite, I removed (through evil hoarding) coins from circulation.

No. You didnt apply any preasure in either direction. Upward pressure is buying. Hoarding is pressure neutral.

Mining is buying bitcoins.

[mestar]

Miners running costs must pass trough exchanges and this will always be a downward pressure on the Bitcoin price.  Why must costs go trough the exchanges?  Because miners must pay their bills in currencies other than Bitcoins.

Actually, I can pay bills with bitcoin, and now I can even pay taxes with bitcoin, thanks to snapcard.  Your leading assumption requires reassessment in the present environment.  You should also remember the halving in 2016 and 2020.

And your Snapcard providers sells those bitcoins on Coinbase.  So, tell me again, which assumption do you think I should change?

[mestar]

I haven't seen this mentioned so I'll just throw it out for consideration:

It seems likely that the income from large scale miners, the fees from the biggest exchanges, and the charges by the large mining pools, will not be sold on any exchange.  The most likely assumption is that they are selling to big buyers over the counter.  These 'investors' don't intend to sell in the short term.

Net effect (given demand):  upward pressure on prices.

You seem to be lost in unimportant details for this feedback mechanism work.  On exchange, off exchange, doesn't really matter, if miners want to sell, that amount of fresh cash is still needed.

[johnyj]

I had a poll before, you can see that more than half of the miners hold their coin at least for a year
https://bitcointalk.org/index.php?topic=296264

Would be interesting to see if that distribution has changed due to price rising, when the price was 100ish i only sold half the mined coins, now i sell all.

Those polls are price-irrelevant, it is a general strategy of miners, the higher the price, the higher the difficulty, the average mining income actually dropped. But old coins indeed worth more when price rises, so when a price spike happens, many old coins will get sold. Once they are sold, they will spread into more people's hands, thus further reduce the future sell pressure

[johnyj]

I haven't seen this mentioned so I'll just throw it out for consideration:

It seems likely that the income from large scale miners, the fees from the biggest exchanges, and the charges by the large mining pools, will not be sold on any exchange.  The most likely assumption is that they are selling to big buyers over the counter.  These 'investors' don't intend to sell in the short term.

Net effect (given demand):  upward pressure on prices.

You seem to be lost in unimportant details for this feedback mechanism work.  On exchange, off exchange, doesn't really matter, if miners want to sell, that amount of fresh cash is still needed.

FED is printing 2.8 Billion USD every day, there are enough amount of fresh cash, the rise of bitcoin price is unstoppable before they stop QE

[An amorous cow-herder]

Mining is buying bitcoins.

No, its creating bitcoins. Which these days means buying or renting mining equipment. The mere act of mining does not change the price in any way.
Or is mining gold the same as buying gold on the market?

[Holliday]

Mining is buying bitcoins.

No, its creating bitcoins. Which these days means buying or renting mining equipment. The mere act of mining does not change the price in any way.
Or is mining gold the same as buying gold on the market?

The 2016 block difficulty adjustment attempts to keep the supply of newly found bitcoins steady.

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

[An amorous cow-herder]

Mining is buying bitcoins.

No, its creating bitcoins. Which these days means buying or renting mining equipment. The mere act of mining does not change the price in any way.
Or is mining gold the same as buying gold on the market?

The 2016 block difficulty adjustment attempts to keep the supply of newly found bitcoins steady.

The rotation of the earth causes periods of darkness known commonly as "night".
Factually correct and just as irrelavent.

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

No, buying increases price. Buying mining equipment increases difficulty.
If buying mining equipment had a direct effect on the exchange rate (i assume you imply going up there as well) then even cpu mining would still be profitable, since buying mining equipment just increases the price of bitcoins. While that would be really cool for miners i dont really think thats how it works.

[traderCJ]

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

The only coins that affect the exchange rate are those put up for sale.

[Holliday]

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

The only coins that affect the exchange rate are those put up for sale.

The block reward, which tries to happen every 10 minutes, are coins that are up for sale.

[traderCJ]

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

The only coins that affect the exchange rate are those put up for sale.

The block reward, which tries to happen every 10 minutes, are coins that are up for sale.

This is a common misconception.  Those coins are only "up for sale" when they're put on an exchange and their sale is advertised or immediately executed.  Think about it.  Coins going into a hoard have no effect on the market price.  Coins not up for sale are not part of the economy.  Off-exchange sales have an indirect effect on market value, but I don't think you're arguing that.  I'll say it again: As far as the current market value is concerned, coins going into a hoard might as well not even exist.

[Holliday]

If I want to obtain Bitcoins I have basically two options. I can purchase them from someone who already has a supply (previously mined bitcoins), or I can purchase hashing power and pay for electricity in an attempt to find block rewards. Either way, I'm trying to obtain bitcoins and either way it has an effect on the exchange rate.

The only coins that affect the exchange rate are those put up for sale.

The block reward, which tries to happen every 10 minutes, are coins that are up for sale.

This is a common misconception.  Those coins are only "up for sale" when they're put on an exchange and their sale is advertised or immediately executed.  Think about it.  Coins going into a hoard have no effect on the market price.  Coins not up for sale are not part of the economy.  Off-exchange sales have an indirect effect on market value, but I don't think you're arguing that.  I'll say it again: As far as the current market value is concerned, coins going into a hoard might as well not even exist.

If a coin is being hoarded, it isn't being put up for sale. I don't see how you can argue that this doesn't affect the exchange rate.

[Impaler]

Holliday/traderCJ :  I think your disagreement is coming from what your assumption of 'baseline' is.  CJ is operating on a 'present market supply of BTC and USD' as his baseline so an activity which doesn't add or subtract from the market is neutral to him.  Holliday seems to me assuming a baseline of 'all coins' liquidated or on the market somehow, so hoarding anything is a reduction of available coins from that baseline.

Thing is that the history of BTC has ALWAYS been one in which most coins are hoarded very quickly.  The distinction were talking about is if they miners are the chief hoarders or if they are just operating a narrow margin business that supplies coins to a market from which hoarders make purchases.  In the GPU era I think the former kind of miner was dominant, the barrier to entry was low, the ongoing power cost was the primary expense and the miner liquidated his mining output immediately to lock in profits.  Now you have big barriers to entry and infrastructure dominates so the miner today is more likely to be a self-hoarder or at the least to be in a much longer-term repayment horizon so they hold coins longer because deflationary gain is necessary to make the mining process profitable. 

This is a much more tenuous basis for a market then the old GPU era, that market badly overbought equipment and the new dynamic is even MORE conducive to over-investment, without the Chinese bubble starting in November we would already be deep into a collapse in which miners would be seeing no ability to ever break even on their machines.  China pushed back that data a few months but it would take a never ending bubble to hold it off indefinitely.