Dead cat bounce

[teukon]

I think the high volatility is the primary obstacle to the wider adoption of bitcoin, and the primary reason I speculate is to help reduce exchange volatility.  I'm happiest when I see that one of my buy or sell orders was partially filled before the market switched directions, meaning that I "shaved the peak", so to speak, off the market rally or the drop.

Boring though it may be, I hope the market stagnates between $4.80 and $5.20 for the next few weeks to months, and allows developers and users to get a taste of price stability.

Excellent work.  I do hope more traders can keep shaving off these peaks and predicting this market successfully.  The volatility scares too many potential users off.  I'm often trying to send money to someone and asking if they accept Bitcoins.  In only four cases in the last few months have I had a positive answer from people that would otherwise not be involved in Bitcoin at all.

If the market were much more stable then more people would be willing to start accepting Bitcoin and I'd have a much easier time with payments and donations (Transaction fees and comission (GBP -> USD) are not fun when all you want to do is donate).  People who get into the Bitcoin market and trade purely for profit are doing Bitcoin a great service (provided of course that they are successful) and they have my thanks.

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[Jixtreme]

People who believe they will have the opportunity to sell once again at higher prices wouldn't - nor shouldn't - stop mining. Most miners aren't living paycheck-to-paycheck, and just because the incremental bump to their energy bill is not offset by the current price of BTC doesn't mean they won't eventually turn a profit. What really matters is ROI.

Short term losses are offset by recovered in future profits. Wise miners won't quit until there's no hope of ever recovering their investment.

-Jix

[Bigpiggy01]

Short term losses are offset by recovered in future profits. Wise miners won't quit until there's no hope of ever recovering their investment.

Or just by doing a bit of trading

[worldinacoin]

Bitcoin isn't too stable but so is everything else including the USD, in fact nowadays, nothing is stable.

[BubbleBoy]

The implicit goal when someone talks about rationality in this forum is fiscal acquisition, but that is a bit silly.  There are people who are going to mine bitcoin even if the exchange rate is 1c/BTC, because they like the idea.

Do those people derive an utility proportional to the amount of BTC mined ? Are they willing to  dump thousands of dollars into mining equipment that does not recover it's cost, as opposed to some casual CPU mining ? Are they capable of covering this financial loss for a long period of time ? Do their wives agree ? Sure, hobby mining at a loss might continue, but I'd say it's has a negligible contribution to the difficulty.

and just because the incremental bump to their energy bill is not offset by the current price of BTC doesn't mean they won't eventually turn a profit. What really matters is ROI.

When the revenue drops bellow the energy bill you must stop mining immediately. There's no point in buying overpriced bitcoins via your energy bill when you can buy them cheaper on the market. If you would eventually turn a profit by continuing mining, you stand to gain even more by stopping mining and buying coins on the market (because you can buy more for the same money spent on electricity; or buy the same amount as you would have mined, and pocket the dollar difference).

Profits from predicting the future price of bitcoins are speculative, the revenue for mining is simple arithmetic. Can't believe people still fail at this after the topic has been talked to death in hundreds of threads.

[Nagle]

wouldn't you expect the difficulty go down? It's no longer profitable to invest in new mining rigs, moreover, many people are scarcely making any profit with such low exchange rates.

Mining peaked at the end of July 2011.

The difficulty is declining, trailing the decline in mining by about two weeks.

The mining peak trailed the price peak by about 6-8 weeks.  The mining curve overall looks like the price curve, but delayed 6-8 weeks. That's an indication of how long miners will keep working once mining becomes unprofitable.

[Jixtreme]

When the revenue drops bellow the energy bill you must stop mining immediately. There's no point in buying overpriced bitcoins via your energy bill when you can buy them cheaper on the market. If you would eventually turn a profit by continuing mining, you stand to gain even more by stopping mining and buying coins on the market (because you can buy more for the same money spent on electricity; or buy the same amount as you would have mined, and pocket the dollar difference).

Profits from predicting the future price of bitcoins are speculative, the revenue for mining is simple arithmetic. Can't believe people still fail at this after the topic has been talked to death in hundreds of threads.

Right..... I totally fail at this topic.

Of course future Bitcoin price is speculative! That doesn't mean a miner "must stop mining immediately." I very clearly targeted people who BELIEVE the price of Bitcoin will once again rise above energy costs.

If you want no risk income, well, you probably wouldn't have started mining at all, since the original hardware investment would've been a risk. If your hardware is paid off and you only want a guaranteed return, sure by all means, stop mining. But if you're like many of the rest of us, who BELIEVE bitcoins will one day be much, much more valuable, to stop mining now would be to miss the opportunity for more coins.

Every investment involves weighing risks and rewards. This is no exception.

-Jix

[iamzill]

When the revenue drops bellow the energy bill you must stop mining immediately. There's no point in buying overpriced bitcoins via your energy bill when you can buy them cheaper on the market. If you would eventually turn a profit by continuing mining, you stand to gain even more by stopping mining and buying coins on the market (because you can buy more for the same money spent on electricity; or buy the same amount as you would have mined, and pocket the dollar difference).

Profits from predicting the future price of bitcoins are speculative, the revenue for mining is simple arithmetic. Can't believe people still fail at this after the topic has been talked to death in hundreds of threads.

Right..... I totally fail at this topic.

Of course future Bitcoin price is speculative! That doesn't mean a miner "must stop mining immediately." I very clearly targeted people who BELIEVE the price of Bitcoin will once again rise above energy costs.

If you want no risk income, well, you probably wouldn't have started mining at all, since the original hardware investment would've been a risk. If your hardware is paid off and you only want a guaranteed return, sure by all means, stop mining. But if you're like many of the rest of us, who BELIEVE bitcoins will one day be much, much more valuable, to stop mining now would be to miss the opportunity for more coins.

Every investment involves weighing risks and rewards. This is no exception.

-Jix

If merchant A is selling bitcoins for $5 and merchant B is selling bitcoins for $6, which one would you buy from?

If merchant A is selling bitcoins for $5 and merchant B is selling bitcoins for $6, but you spent $2000 to get a premium account at merchant B, which one would you buy from? (Remember, if you don't use that premium account you're wasting your $2000 investment)

If merchant A is selling bitcoins for $5 and your miner is producing Bitcoins at a cost of $6/BTC, would you mine or buy?

If merchant A is selling bitcoins for $5 and your miner is producing Bitcoins at a cost of $6/BTC, and you've put in $2000 in your rig, would you mine or buy?

[Minsc]

@iamzill

They sell bitcoins on eBay for twice the price they normally are.  But that's at the risk of selling them via PayPal.

[iamzill]

@iamzill

They sell bitcoins on eBay for twice the price they normally are.  But that's at the risk of selling them via PayPal.

Those sales on ebay are either scams will never go through (only idiots would pay $10 when they can pay $5).

 I'm talking about 0 risk transactions here that have huge liquidity and thus happen instantaneously. Just imagine merchant A = mtgox.

[Minsc]

@iamzill

I hear on other forums people complaining that they can't buy bitcoins with a credit card and how difficult it is.  And I hear on this one that people are able to make money doing it and don't get that many ripoffs if they only sell one coin at a time.

[BitMagic]

Everybody here agrees that a new GPU mining rig is a bad investment. However most people are not loosing money on the short run, they are making electricity and something extra - just read my numeric examples. This is the complete quote of the OP, the important part bolded for your reading pleasure:

Indeed. My displeasure stemmed not from your inability to understand after all, but rather your choice to ignore the piece of the OP I was working from. With a conditional statement. I'd like to hear more about the above, though. Lots of room in this debate for whether or not it's actually profitable.

If all you want to do is safely invest USD with a guaranteed short-term return, go buy a treasury bond, and stop using 15 point bold font to annoy us with your myopic viewpoints.

Lol. You do realize you're in the "speculation" subforum? Just curious if you can even read the big words at the very top, now.

I give away money all the time, and I suppose that doesn't make sense to you, either: it's called donating.  

Again, without a basic understanding of utility, you have nowhere to stand arguing in this subforum. Go look it up, seriously. I have no problem with ulterior motives besides profit for miners. I was only responding to the (OP's presumed, hypothetical) factors driving them. Your reading comprehension is called into question, once again.

There are people who are going to mine bitcoin even if the exchange rate is 1c/BTC, because they like the idea.  On the other hand, such people are less likely to dump all the BTC they mine into an exchange for fiat currency.

And there are people like me who could care less about its success as long as I'm betting on the right side for profit. I see a large, generalized outcry about the "commoditization" of bitcoins around here, as if the existence of transactions outside goods/service exchange is the demon of your pet project. 1) Not very libertarian of you, and 2) not very possible.

I think this poll is pertinent to the discusion http://forum.bitcoin.org/index.php?topic=24542.0

Many people will continue mining when it costs more to mine than they get in return.

Consider also bitcoin related businesses, who might continue mining at a loss so that the rest of their business can continue making a profit.

"I have no overhead so I always make a profit." i.e. "I steal my power, so who cares?!"

[Crypt_Current]

and 2) not very possible.

Why not?

[Crypt_Current]

"I have no overhead so I always make a profit." i.e. "I steal my power, so who cares?!"

This doesn't logically follow.  I don't pay the power bill where I live and that is not my own choice.

Also, what if I did live somewhere that I was in charge of the power bill, and I used all solar power?  Or wind?

[PatrickHarnett]

If short run marginal cost is below what you can sell for, you produce more.  You hope to recover your "sunk" cost over the life of the project.

My cats still like the warmth from the computers.

Yes, the OP talks about investing in new equipment, and how it might not be logical to invest when the short-run price is below long-run cost.  However, this occurs often.  In a field I work with (electricity markets), people will spend $500 million on a power station with a long-run cost of $100/MWh when the price is $50/MWh even though it is not logical to do so.  They should wait until the price is higher.

However, once built, and with a SRMC (short run marginal cost) of $30/MWh, they have a marginal positive benefit when the price is above $30/MWh.  i.e., if the the price is $31/MWh, run the damn thing and make a $1.

For bitcoin mining, if the price of bitcoin is greater than the short-run cost of production, people will mine, hence the focus on electricity cost.  But it doesn't make as much sense to buy more hardware.

And the cats have both a sunk cost and a variable cost, but not much bitcoin output - I should turn them off (no, I don't think so).

[BitMagic]

and 2) not very possible.

Why not?

Love to hear how you expect a new currency to take hold if you can't exchange it anywhere. And I think it's pretty obvious that as soon as there's an exchange, there are people willing to take advantage of arbitrage.

This doesn't logically follow.  I don't pay the power bill where I live and that is not my own choice.

No deduction necessary, I was stating fact.

[Crypt_Current]

and 2) not very possible.

Why not?

Love to hear how you expect a new currency to take hold if you can't exchange it anywhere. And I think it's pretty obvious that as soon as there's an exchange, there are people willing to take advantage of arbitrage.

This doesn't logically follow.  I don't pay the power bill where I live and that is not my own choice.

No deduction necessary, I was stating fact.

Your "fact" is not anything like my personal situation.

And as for exchanging BTC at places for things -- I do it all the time.

[Crypt_Current]

And, what's the problem with a little arbitrage?  Have you visited bitcoinica.com?

[BitMagic]

And as for exchanging BTC at places for things -- I do it all the time.

And, what's the problem with a little arbitrage?  Have you visited bitcoinica.com?

I am tired of being a jerk, so I'll just explain normally.

I was responding to two individuals (old_engineer and fivebells). I was pointing out that their general sentiments ("You can't talk about economic rationality with bitcoins! Bitcoin is about faith and love and backless currency and...!") was a joke because it 1) flies in the face of both libertarianism and 2) you can't really have a currency as bitcoin purports to be without an exchange market and arbitrage.

I know at least old_engineer wasn't being that literal; they were just making counter-arguments about other valuable uses and utility gained outside of profiteering. None of which I dismiss. I was just calling to attention the general attitude that many have here: that speculation is undesirable. My argument: unavoidable (and read better, please).

I actually only use bitcoinica. There isn't really anything worth purchasing with BTC at the moment for me, and it's volatility makes using it as a currency pretty dangerous for my bank account. 

[fivebells]

I was responding to two individuals (old_engineer and fivebells). I was pointing out that their general sentiments ("You can't talk about economic rationality with bitcoins! Bitcoin is about faith and love and backless currency and...!") was a joke because it 1) flies in the face of both libertarianism and 2) you can't really have a currency as bitcoin purports to be without an exchange market and arbitrage.

  Mmm, strawman.