Bubble not yet popped

[grod]

What the bottom will be is a good question and it's an important question for many. We're reaching the stage where most of the bears are slowly starting to think about actually missing the bottom which means the bottom will undoubtedly be higher than what the majority of bears think it will be.

It never works like this.  Nobody "worries" about missing a "bottom" any more than they "worry" about missing a "top."  People generally follow the prevailing trend.  Once there's an uptrend, people will start getting concerned about missing out on the ride up.  Brownian motion near support and resistance levels doesn't matter.

I get a good laugh about you being concerned about revealing your positions.  Nobody cares.  And I can guess -- you mined and didn't sell, so are now long a few bitcoins at a buy in price of around $3 (factoring in hardware depreciation).

Even with free power there's the opportunity cost of not selling your mining hardware to buy bitcoins with it.  Even now my 2x5830s, if sold for $80 each on ebay, would buy more bitcoins than they'll profitably mine at current levels.   Expecting higher profits in the future is speculating and can be done through direct buy more efficiently.  There's replacement cost for hardware failure.  You may judge deepbit an invalid indicator of community sentiment but it's served me well so far.

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[P4man]

You may judge deepbit an invalid indicator of community sentiment but it's served me well so far.

Up until that line I agreed with everything you said. But hashrate is no indicator of sentiment. Its a delayed indicator of price. Ignoring transaction fees for now, its simple, if price goes down, hashrate goes down and vice versa. Through difficulty, and assuming stable cost/MH, the relationship is linear; for all the reasons you listed above, in general miners will pull the plug if they cant make a profit, regardless of their sentiment, and if there is money to be made mining, it wont take long for people to figure it out. So what deepbit is showing is simply that bitcoin price tumbled. Nothing else. And unless price goes up sharply, hashrate will continue to decline for a while, and it wont go up because of sentiment or wall street journal front page ads; it will only go up after BTC price has gone up and more miners can run their rigs profitably.

[grod]

Up until that line I agreed with everything you said. But hashrate is no indicator of sentiment. Its a delayed indicator of price.

When price fell to the point where even at 4.6c/kwhr it was stupid to mine but hash rate did not fall I knew one thing -- 80% of the people who got into mining bitcoins in June are still mining, which means they are BULLISH.  They expect prices to go up, not down.  If they expected further down movement they'd shut off their machines and sell cards on ebay.

So when I saw price declining for months but hash rate mostly unchanged I knew there was lots and lots of downside to go.  Even at $6 it looked like we got nothing but bulls, so I was convinced the worst is not over.

Ignoring transaction fees for now, its simple, if price goes down, hashrate goes down and vice versa.

Except that hash rate did NOT go down appreciably over the months since we were at $15.  Hence it's a valid indicator of broad sentiment (bullish) in an obviously down trending market.  People were talking bull, producing, but NOT buying.
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[P4man]

I said its delayed. If you've invested heavily in a mining farm, or even just a few cards, you are not instantly going to sell your hardware if profitability drops. Getting it back may cost you a lot. And even if you would make that decision instantly, you likely wouldnt find buyers overnight. Some are continuing to run their miners until they are sold.  Many wont make the decision to pull the plug until the utility bill comes it.  Some will continue running their rig for the heck of it, or to mine private anonymous coins. Some have free electricity. Some are even still profitable today. But  thats not the same as being bullish. Im still mining, but Im not bullish. People were bullish back in may and june, but hash rate still lagged price by quite a bit. The same is happening during this decline, and probably during the next bubble/rise.

Looking at hash rate is about as useful as looking at the exchange rate of one or two months ago.

[grod]

I have no better barometer of bitcoin community sentiment than hash rates, so I will use that.  Here is what looks to be happening:  hash rates on deepbit are now below a terahash.  In the coming days this will be reflected in slower transaction rates and rapidly dropping next difficulty estimate.

The same miners who can't cash out will decide to shut down knowing they'll be mining those coins at  < 800k difficulty if they take a break.   We've seen this with alt chains -- when it looks like the next difficulty adjustment is severe enough there is a negative feedback loop in computing power.  The ones left (free power miners) mine at a disadvantage for a disproportionately long time.

The risk for bitcoin price is a larger % of miners may decide to sell some knowing they'll mine back more coins, cheaper.  Going from 15-20% of miners selling their stash to even 30% would be horrific.  If I estimate my cost basis to make a bitcoin just went from $2.80 to $.90 I'll have no problems dumping at $2.

If I see a 75% drop in hashing power that'd be my confirmation of a bottom.   I will at that point switch strategy from bear to neutral and ready to go bull.

[Crypt_Current]

hash rates right now I believe are inaccurate; there's more dossing going on.  Deepbit, btcguild, and mining.bitcoin.cz are all flaky right now... quite irritating...

[enmaku]

i think it could easily go under $1 because the market always overshoots. So even if a sustained 'bottom' is supposedly $1.x... it'll still spike down briefly and pop back up.

This is the traditional shape of a bubble. Exponential climb to peak -> correction, which dips below market value -> return to fair market value. As it turns out, homeostasis is a useful concept outside of biology class too

[BitMagic]

I have no better barometer of bitcoin community sentiment than hash rates, so I will use that.  Here is what looks to be happening:  hash rates on deepbit are now below a terahash.  In the coming days this will be reflected in slower transaction rates and rapidly dropping next difficulty estimate.

The same miners who can't cash out will decide to shut down knowing they'll be mining those coins at  < 800k difficulty if they take a break.   We've seen this with alt chains -- when it looks like the next difficulty adjustment is severe enough there is a negative feedback loop in computing power.  The ones left (free power miners) mine at a disadvantage for a disproportionately long time.

The risk for bitcoin price is a larger % of miners may decide to sell some knowing they'll mine back more coins, cheaper.  Going from 15-20% of miners selling their stash to even 30% would be horrific.  If I estimate my cost basis to make a bitcoin just went from $2.80 to $.90 I'll have no problems dumping at $2.

If I see a 75% drop in hashing power that'd be my confirmation of a bottom.   I will at that point switch strategy from bear to neutral and ready to go bull.

Grod, there is a reason people are unable to grasp your argument. They don't understand the first thing about the relevant calculations for profitability. A large part of this is combined ignorance and hubris; I am almost tired of being infuriated by the obscene lack of basic understanding of profitability. The other part is just plain hubris. They may understand, but they want to believe so badly, they'll happily ignore reality for it.

Technomage, I've seen you write great stuff, in terms of technical understanding. But you're cherry-picking to suit your desires.

[P4man]

If I see a 75% drop in hashing power that'd be my confirmation of a bottom.   I will at that point switch strategy from bear to neutral and ready to go bull.

A 75% drop in hashpower is different in what way from a 75% drop in BTC price? Its essentially the same thing, and a completely arbitrary number compared to a completely arbitrary baseline. But whatever strategy works for you I guess...

[BTC Economist]

I don't think it's worth the effort trying to time the bottom or even getting back into Bitcoin at all.  To get back in, I'll need to see some signs of future growth and I just don't see that.  The risk/reward is just not there.  You can still make money given its a deflationary currency, but I'd rather put my money in higher-growth investments.

[Devss]

I have no better barometer of bitcoin community sentiment than hash rates, so I will use that.  Here is what looks to be happening:  hash rates on deepbit are now below a terahash.  In the coming days this will be reflected in slower transaction rates and rapidly dropping next difficulty estimate.

The same miners who can't cash out will decide to shut down knowing they'll be mining those coins at  < 800k difficulty if they take a break.   We've seen this with alt chains -- when it looks like the next difficulty adjustment is severe enough there is a negative feedback loop in computing power.  The ones left (free power miners) mine at a disadvantage for a disproportionately long time.

The risk for bitcoin price is a larger % of miners may decide to sell some knowing they'll mine back more coins, cheaper.  Going from 15-20% of miners selling their stash to even 30% would be horrific.  If I estimate my cost basis to make a bitcoin just went from $2.80 to $.90 I'll have no problems dumping at $2.

If I see a 75% drop in hashing power that'd be my confirmation of a bottom.   I will at that point switch strategy from bear to neutral and ready to go bull.

Are you sure? $0.90 is bottom?  Please reconsider your decision of dumping at $2.