Bitcoins have non-speculative value, don't they?

[PowerGlove]

I'm busy reading "Understanding Bitcoin" by Pedro Franco and have a question for the forum.

In chapter 3 he compares bitcoin to gold and says that one of gold's advantages is that the cost of production (physical mining) forms a support for price levels that can help to prevent acute down-trends.

The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.

My question is: Isn't there something very similar happening with bitcoin too?

The mechanism being that if the price falls too low¹ then selling would slow down in response and supply² would decrease therefore increasing price.

I have never studied economics, so maybe I'm missing something obvious. I would appreciate anyone's thoughts on this, thank you!


[1] Below the "minting" cost, which is considerable and increases every "halving".

[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.

[mk4]

My question is: Isn't there something very similar happening with bitcoin too?

Not going to happen. The less miners, the more bitcoin existing miners get. On the case of bitcoin though, the bitcoin mined per block is capped anyway. So it's not like there are more bitcoin that gets mined when there are more miners. For more info: https://academy.binance.com/en/halving

The mechanism being that if the price falls too low¹ then selling would slow down in response and supply² would decrease therefore increasing price.

[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.

Maybe, but we can't know for sure. People sell bitcoin for multiple variety of reasons. Certain news rake up more sellers than other news, depending on how dire the news is.

We could also say that as price goes down, long-term investors buy. But then again, it depends. How much capital do buyers have compared to sellers? If there are more bitcoin being sold than being bought, then the price would go down anyway.

[BlackHatCoiner]

My question is: Isn't there something very similar happening with bitcoin too?

No, there isn't. That's why it's so volatile. There's no change in the supply that re-balances the change in demand, so that the equilibrium price remains somewhat more stable. Supply is completely inelastic.

However, I don't see how's that relevant to the title.

For more info: https://academy.binance.com/en/halving

Don't do Binance good. Here's some better source: https://en.bitcoin.it/wiki/Controlled_supply

[tranthidung]

Don't do Binance good. Here's some better source: https://en.bitcoin.it/wiki/Controlled_supply

Bitcoin Wiki should be one of first resources we should look at when we're finding something about Bitcoin.

I know a very helpful article from Jameson Lopp.

• How is the 21 Million Bitcoin Cap Defined and Enforced?
• Interesting fact is many points in that article was discussed on the forum months or years ago. I don't say Jameson stole ideas of forum members as fact is fact but it proves that the forum has many knowledgeable members

[kryptqnick]

I've been numerous speculations on how BTC price can't fall below a certain level because then mining wouldn't be profitable, and the op's question reminds me of that. The thing is, that's life, and yeah, something can become unprofitable, people can lose money, and some will go out of business while others would continue operating despite losing money, hoping it would all be worth it in the end. Mining gold requires resources, and mining Bitcoin requires them as well. But we don't value gold based on how hard it is to mine it, and the same is true for Bitcoin. The difference is that with gold a mining deposit can be suddenly discovered and an influx of gold can increase unexpectedly, while mining of Bitcoin is happening at a strict rate, and we also know the total supply whereas we can't know gold's total supply.

[cabron]

Comparing bitcoin to gold is actually pretty good, they're both valueless and we humans with our myopic self preservation perspective see it as a precious commodity. So to answer your question about bitcoin's intrinsic value, I don't think it doesn't have any, try to make a monkey choose between a banana and bitcoin, you'll probably know the results.

That's a sad analogy. Bitcoin can never replace a banana, the monkey won't need a currency but to someone who spends to live another day he will need the money.

Bitcoin is supposedly to be use to replace the legacy fiat system which is why this  is a revolution against it which to an activist we hope BTC replaces fiat currencies including EUR, USD or YEN.That is why we as buyers and sellers put an intrinsic value to BTC and its determined through the market. 

[franky1]

alot of people (like blackhatcoiner) have a narrow mind view and only see the PRICE as the only metric..
they have been told its not the case but yet it may take them longer to think about it..

there is a underlying value (not seen in the market) this value is NOT the market price.
its a number that sits below the market price

EG golds VALUE is not the ~$1,700 currently.. golds underlying value is about $900 at the moment

in short if everyone could mine gold for $1 using a spoon and a coffee filter in their back yard. the market price would not be $1700. it would be $2-$5. value in this case is not the $2-$5k speculative market rate. the value would be the $1 that no one can mine for below and be willing to sell for below.

but because its hard to get gold through mining with it costing over $900 to mine gold. gold miners wont sell for less than $900. so they sell for profit. and the speculative sentiment about how much profit they can make and/or how much demand there is and/or competition is the stuff of speculations ABOVE the value.

when there is too much speculation above value and the price goes too high(premium) totally outside of logic then thats the bubble area of a market.


bitcoin is the same in this respect. if it were PoS where it only costs pennies to signblocks the value would be pennies and the speculative market above that would be the price, where by the price is speculative and volatile due to many factors of sentiment and profitability dependant on supply and demand.

(many people are going to learn this the hard way when ethereum merges to become PoS and the value drops to a few dollars. the speculative price will correct with it.)

bitcoin is PoW so has a higher cost than PoS so already its better value than PoS. and with no miner on the planet able to mine this year for a few dolars. bitcoins value is no where near a few dollar value.
its actually much much higher(way more than $10k)

finding the most efficient hashrate miner and the best rate electric and dividing up that miners hardware cost over its life cycle down to a per coin cost. also also adding the electric cost per coin by comparing that to the network hashrate and coins it is rewarded you can calculate the best rate value per coin of mining bitcoin. the bottom rate no one else can beat. and thats the value line no one on the planet can beat. meaning no one is selling below.
the stuff above that is the less efficient miners or the ones that want to hold out for higher prices to sell or the many other factors of supply and demand..(speculation)

..
as for the factors of shifting this value amount.. well if the more speculative area stuff, like the more expensive miners switch off. then bigger slices of the reward are giving to the remaining efficient miners so that they can get more coin meaning their cost per coin goes down meaning more profit per coin meaning able to sell for less and still break even.

usually miners with less efficient asics switch off when the market price speculates below their higher price mine cost so it ends up not cheap to mine.. however when switching off they can also then become buyers as its cheaper to buy rather then mine which can speculate the price upwards. thus widening the gap between price and value. in both directions..(alot of game theory to try to analyse the value/price gap due to actions of the network. alot of variables to account for. too many to describe)

this is different for gold though.. when prices of gold on markets go down. gold miners stop.. whereby there just is less gold being made. its not a case of the gold gets passed to the remaining miners. it just means there is less gold. and so that affects the supply and demand. causing a price rise but not causing a value dip

difference being that stopping gold mining causes a supply shortage thus the demand can cause a PRICE increase.
in bitcoin stopping mining means the supply shifts to the remaining miners meaning they get a bonus meaning this causes their costs/value number to decrease meaning they can sell for less. while also possibly having more buyers buying instead of mining. causing the price rise.

.. gold/bitcoin underlying value is not a fixed rate. its not even a fixed ratio of price:value. it is different to the price and the value does change due so circumstances. but the underlying value does not change by same the whimsy/speed/reason or volatility of price. value does change but not as fast as the price.

and in many cases even if the market is heading in a downward motion the value hardly moves and sometimes continues in its upward motion just at a slower rate. (many factors at play too many to describe)
it requires alot of things to truly push down the value of bitcoins underlying value amount. and even now with all of the 2022 price drama.. bitcoins VALUE is still higher then the VALUE of 2020-2021. even though the PRICE is lower then the 2020-2021 PRICE

bitcoins value is not the ATH. its a number that sits underneath near the ATL of a longer term period.. the point no one wants to sell below and hasnt sold below on a long period of time, where its unlikely to sell below any time soon

[Upgrade00]

The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.

Scarcity is vital to valuation, but it doesn't just function as a system you start and stop in response to the market. Gold mining rigs can work for a number of years and takes lots of money to set up. It's not a system that can be readily opened and closed in response to changes in the market, CMIIW.

The mechanism being that if the price falls too low¹ then selling would slow down in response and supply² would decrease therefore increasing price.

Bitcoin's value usually falls low in response to high sell offs and is usually direct result of it. Where holders panic sell to cut their losses.

Also, market supply, i.e, coins available for purchase on exchanges are quite different from total supply, which is determined by each completed block.

[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.

If willingness to sell reduces against demand, then that should create a support for the price, and prevent further dumps.

[PowerGlove]

However, I don't see how's that relevant to the title.

The title may be a little goofy because I'm mimicking the language the author is using in chapter 3 without fully understanding his definitions. I'm open to suggestions, if you have any.

It seems franky1 and I think the same way, because my intuition also tells me that there is an "underlying" value based on the cost of electricity and the size of the block reward, and on top of that there is a "speculative" value that bounces around based on trading activity.

Based on some of the other responses, I guess I didn't express myself very well. I'm aware of bitcoin's supply schedule and the difficulty adjustment that keeps blocks being mined roughly every 10 minutes. So I know that the supply of bitcoins has nothing to do with price or with how few/many miners there are.

I suppose a simpler way to ask my question would be this: If (according to the book I'm reading) the fact that there are real monetary costs associated with "producing" gold means that there is a kind of "parachute" that helps to prevent its price from falling too low, then why doesn't the electricity cost of mining blocks have exactly the same effect on bitcoin?

Edit: Just want to thank everyone for their responses. There's a lot of knowledge on this forum and I'm grateful for everyone's input.

[hatshepsut93]

Gold can theoretically fall below its mining cost, and mining would just stop - there's a lot of gold lying around in storage, and only a fraction of total gold is being consumed by industry. The lack of new supply would be driving the price up, but it's still possible that a strong downward force could overwhelm it. For example, humanity could decide that it no longer views gold as a store of value, and gold's value would only be dictated by its use in industry.

For Bitcoin falling far below the cost of producing a block could be devastating, because difficulty adjustment happens once per 2016 blocks, so someone would have to mine at a loss the blocks that are needed to reach difficulty adjustment. This could mean that a block would be mined once per many hours or even days. This would contribute to panic and fees would skyrocket to insane levels.

[PowerGlove]

Gold can theoretically fall below its mining cost, and mining would just stop - there's a lot of gold lying around in storage, and only a fraction of total gold is being consumed by industry. The lack of new supply would be driving the price up, but it's still possible that a strong downward force could overwhelm it. For example, humanity could decide that it no longer views gold as a store of value, and gold's value would only be dictated by its use in industry.

Yup, makes sense. Although in that scenario, it seems inevitable to me that industrial use would eventually run up against scarcity which would drive the price back up.

For Bitcoin falling far below the cost of producing a block could be devastating, because difficulty adjustment happens once per 2016 blocks, so someone would have to mine at a loss the blocks that are needed to reach difficulty adjustment. This could mean that a block would be mined once per many hours or even days. This would contribute to panic and fees would skyrocket to insane levels.

That's an interesting point. I guess there would (hopefully) still be a group of enterprising miners that continue to operate at risk, believing that the price will eventually correct. I could see them totally giving up though if there was a serious enough loss of confidence, like a cryptographic break.

[Husires]

It can be said that it will succeed, but the key to failure or success here is determined by one factor, which is demand. Gold is a global reserve and therefore there is a demand for it. No matter how low prices are, you will find that some people want to buy.

In Bitcoin, this equation may not be achieved at the time of the mortgage, and therefore, as long as we ensure continued growth in demand (healthy growth), we will not witness major corrections as is happening now.

It is not appropriate at the moment to compare gold to Bitcoin.

[poldanmig]

It can be said that it will succeed, but the key to failure or success here is determined by one factor, which is demand. Gold is a global reserve and therefore there is a demand for it. No matter how low prices are, you will find that some people want to buy.

In Bitcoin, this equation may not be achieved at the time of the mortgage, and therefore, as long as we ensure continued growth in demand (healthy growth), we will not witness major corrections as is happening now.

It is not appropriate at the moment to compare gold to Bitcoin.

It's quite irrelevant to compare the two under current conditions, but in my opinion these two assets are effective investments to protect our wealth from inflation that occurs, we can say if these two assets are increasingly becoming favorites after fiscal and monetary policies in several countries occur previously, in this case it might be a guide when there is an increase in the inflation rate in a country, although there are many different perspectives in viewing bitcoin and gold, but in this case we cannot make other people  views, both positive and negative be make our benchmark in investing , but despite all these perspectives, I think gold and bitcoin are investment assets that are worthy of our investment in the future.

[dragonvslinux]

The mechanism being that if the price falls too low¹ then selling would slow down in response and supply² would decrease therefore increasing price.

[1] Below the "minting" cost, which is considerable and increases every "halving".

[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.

Enough people have already responded to your question, but unfortunately appeared to have ignored or overlooked your meaning of supply as "available supply" as opposed to simply "circulating supply".

To answer your actual question, although many like to assume that miners don't sell when price is very low, it's actually exactly what they are known for doing - as they have costs to cover (equipment, electricity, even loans). While true they are more likely to engage in starving the supply when price is stable or rising, they are businesses at the end of the day that need to sell their BTC in order to turn a profit.

So in reality the "willingness-to-sell" from miners actually comes down to price stability, as well as mining costs, rather than network stability such as growth, reduction or stagnation. For example in 2021 when miners were mining Bitcoin for an average of $13K, while price was at $33K (at considerable lows after a capitulation of hash rate), there was more of an incentive to hold (less willingness-to-sell), as there was more of a margin of profit to speculate with. This meant they could unload their Bitcoin not at $33K, but $40K, $50K, $60K, etc, or even hold for a much longer period.

But in another example, such as current prices, the average mining cost is around current price (and has been for the past few weeks, while declining), so there have been miners switching off, while others have been selling utpo 100% of their Bitcoin, in order to avoid mining at a loss in case price falls further. The dynamics between average mining cost, hash rate and difficulty I've been documenting here over the past month.

[DU18]

The mechanism being that if the price falls too low¹ then selling would slow down in response and supply² would decrease therefore increasing price.

[1] Below the "minting" cost, which is considerable and increases every "halving".

[2] I don't mean "supply" in the "minting" sense, I mean it in the "willingness-to-sell" sense.

Enough people have already responded to your question, but unfortunately appeared to have ignored or overlooked your meaning of supply as "available supply" as opposed to simply "circulating supply".

To answer your actual question, although many like to assume that miners don't sell when price is very low, it's actually exactly what they are known for doing - as they have costs to cover (equipment, electricity, even loans). While true they are more likely to engage in starving the supply when price is stable or rising, they are businesses at the end of the day that need to sell their BTC in order to turn a profit.

So in reality the "willingness-to-sell" from miners actually comes down to price stability, as well as mining costs, rather than network stability such as growth, reduction or stagnation. For example in 2021 when miners were mining Bitcoin for an average of $13K, while price was at $33K (at considerable lows after a capitulation of hash rate), there was more of an incentive to hold (less willingness-to-sell), as there was more of a margin of profit to speculate with. This meant they could unload their Bitcoin not at $33K, but $40K, $50K, $60K, etc, or even hold for a much longer period.

But in another example, such as current prices, the average mining cost is around current price (and has been for the past few weeks, while declining), so there have been miners switching off, while others have been selling utpo 100% of their Bitcoin, in order to avoid mining at a loss in case price falls further. The dynamics between average mining cost, hash rate and difficulty I've been documenting here over the past month.

I agree with what you said, with prices getting lower like now, miners must also think about every expense they spend or the term in the company is a production cost, nowadays according to an article I read, the average miner spends a lot of money to electricity and also the graphics cards they use, besides that the increasing number of miners will of course make the price of the mining equipment itself increase, according to a report from Jon Peddie Research (JPR), bitcoin miners which bought up at least  700,000 graphics cards have to spend more money than $500 million , in the first quarter of 2021 and this clearly indicates that mining is getting more and more popular and the costs involved are also very high, so I don't think it is possible for miners to sell bitcoins cheaply if in the end they get a margin from the costs incurred so far.

[franky1]

For Bitcoin falling far below the cost of producing a block could be devastating, because difficulty adjustment happens once per 2016 blocks, so someone would have to mine at a loss the blocks that are needed to reach difficulty adjustment. This could mean that a block would be mined once per many hours or even days. This would contribute to panic and fees would skyrocket to insane levels.

That's an interesting point. I guess there would (hopefully) still be a group of enterprising miners that continue to operate at risk, believing that the price will eventually correct. I could see them totally giving up though if there was a serious enough loss of confidence, like a cryptographic break.

since 2013 where asic mining and pool mining really kicked off we have seen 9 years of their economics play out

not everyone mines at the same costs. for instance japan with highest world energy prices are not mining so they are not cutting into the rewards competition. allowing the remaining miners to get more slice of the reward.

its also why bitcoin didnt surpass the ATH number. because that number was the threshold where everyone on the planet, including japan could mine and sell for less and profit. so the buyers dried up. and the price didnt go higher..

anyway back to speaking about the value(underneath)
same is said about hobby miners using residential electric rates. there is a point they also drop out because they see its cheaper to stop mining at put their (would have been) electric bill money into simply buying bitcoin while its cheaper then mining.

there is alot of variable above the underlying value amount that finds alot of sentiments and support levels of what different people above value settle as their view of their desired price point.

but the underlying value. is the bottom value of them all.. the amount everyone cant acquire for for less and isnt willing to sell below.

if there was a devastating reduction of price(down to near but still above value). then the economic game theory comes into action. however. in the realms of worse-worse -worse case scenario to cause anyone to have a devastating need to sell at a huge loss to trigger a huge price drop below value.. is just a notion for worse case games of speculation and mostly fantasy stories. as the odds of it happening are low. as majority are not going to sell at a loss. and it would require a fundamental break in code(bug) or a complete closedown of merchants/exchanges to break the normal economics

[BlackHatCoiner]

The title may be a little goofy

I don't think intrinsic value has anything to do with this, unless you recognize "intrinsic" as a synonym of "underlying". "Intrinsic" is also a synonym of "essential", which is described here: https://en.wikipedia.org/wiki/Intrinsic_value_%28ethics%29

It seems franky1 and I think the same way, because my intuition also tells me that there is an "underlying" value based on the cost of electricity and the size of the block reward, and on top of that there is a "speculative" value that bounces around based on trading activity.

I've discussed about this with franky frequently, and I've explained him why gold's and bitcoin's underlying value differ variously, but it's usually pointless to talk with him; instead of coming to a conclusion you're getting offended.

Let me make some definitions: There's an underlying value, which is less than the market value. The underlying value is the cost to mine a specific amount. The market value is the amount of money you need to acquire that amount from the market.

What both me and franky say:
Gold has an underlying value of about $900. It also has a market value of about $1,700. If there's no person who's willing to give $900 for gold, there's no gold supplied, because it doesn't benefit the miners.

What franky says: (and please correct me if I'm wrong)
Bitcoin and gold have a relation regarding this "underlying value", because both bitcoin and gold:

• Have a cost to mine an amount.
• Have a market value that's greater of that amount.

What I say:
Bitcoin and gold have no relation regarding this (or the same) "underlying value", because, opposed to gold, bitcoin's cost changes based on the demand. If suddenly less people want bitcoin, the market value will fall. But, the market value is a factor that determines the difficulty, which in sequence, determines the cost.

In bitcoin, the more the energy, the less the amount of bitcoin that is mined per energy unit.
In gold, the more the energy, the same the amount of gold that is mined per energy unit.

[franky1]

lets first deal with these comments

What franky says: (and please correct me if I'm wrong)
Bitcoin and gold have a relation regarding this "underlying value", because both bitcoin and gold:

• Have a cost to mine an amount.
• Have a market value PRICE that's greater of that amount.

What I say:
Bitcoin and gold have no relation regarding this (or the same) "underlying value", because, opposed to gold, bitcoin's cost changes based on the demand. If suddenly less people want bitcoin, the market value will fall. But, the market value is a factor that determines the difficulty, which in sequence, determines the cost.

In bitcoin, the more the energy, the less the amount of bitcoin that is mined per energy unit.
In gold, the more the energy, the more the amount of gold that is mined per energy unit.

3 words value.. values   price (be clearer of which you speak)
VALUE is an economic number. this number is not fixed. but nor is it the market.. its the number beneath all other numbers (below AKA underlying)

PRICE is the market..

if you avoid saying "market value" and say "market price" you gain one step forward in understanding.
then realise you cant see the VALUE on the market order book.. its beneath the price you see..
hope you take a few steps forward and try to find it. but dont keep calling the price the value as you will go backwards

VALUES is not an economic number. its a sentiment of features, utility, desire, views on scarcity. its the emotional decision stuff. above value that add on more to come to a personal number of peoples personal PRICE points

...
gold and bitcoin have a underlying value.. the lowest anyone can mine for. in both

as for the difference of the costs vs reward of both..
depends on which way you view it.

if a land costs more to mine gold because instead of sand, its hard rock.. but both lands yield the same coin.. then obviously the most costly one just wont get mined at all and all effort is put into the sandy land.
meaning if both land could have yeilded 1000 ounces each(2000 combined).. this year gold production is only 1000 ounces.. its not a case of gold mining still getting 2000 ounces because a competitor gave up the hard rock land
its that there is less ounces entering the market this year because les mining

result is that if there is too much work to mine gold. people just avoid the work. in gold they look at the market rate and then account it its worth mining to get paid for the effort..(gold miners react to the market rate)

in bitcoin. if the price slips/declines expensive miners give up. however by giving up the remaining miners get more reward (less competition means more slice of the block reward to keep and not share) so the same coin can reach the market that was expected but now the efficient miners are the ones giving them more coins then they expected(before competition drop) so they have more coin for their same work meaning more profit to be made

thus their same costs gives them more reward by seeing their competition shut down.
where as if we flip to the other side.. because there are efficient miners that can mine below the PRICE . they dont care about the market price. again if there is too much competition. its not the underlying efficient miners losing out/ or wil drop out first.. so again they dont care..
its infact those at the top costs. who speculate out of mining or take the risk to remain in the competition.
this ends up in pushing the price up to compensate this competiton
EG not mining at a loss. so buying instead of mining due to it being cheaper to buy instead of mine for the high cost miners. which gives more support above the underlying value to push the price up

the efficient miners get more reward and reap more benefits where as the most costly miners speculate and cause the price changes and react and respond to price changes

thats where gold and bitcoin differ.
gold miners react to the whims of the markets causing supply shortage/oversupply depending on price. efficient bitcoin miners use the markets to push the markets due to the games of the competition. where by the supply is the same but only the efficient miners reap the benefits when the price is low



anyway lets concentrate on value(economic number)
its like the difference between one house PRICE and the local/national/international "comps" that underly things..
where if you find the bottom you find the lowest VALUE that no one is selling below. thus can then base the prices speculative hype/pump/bubble area amount above this.
EG if the price is 20x more then the underlying value of houses. then there is alot of speculation hype..

you then have to equate the other factors of values(sentiments of features and benefits) this is not a number, but a speculative sentiment of peoples desires, whims and current trends.
EG does it come with a pool a view. a bathroom per bedroom. enough room to do tango dancing with a model
wher by the sentiment decides a price point above value where by someone thinks its their desired PRICE they would prefer to see. where by they personally might see the market PRICE is near their personal price point. or not.

but lets get back to VALUE
its not fixed. yet it does not move at the same speed as PRICE
its not fixed. yet it does not move at the same correlation as PRICE

underlying(bottom) VALUE is not based on having no value because each person rates it different. but to find the BOTTOM value of those varied values.

EG japans mining cost at $0.38kwh makes them way over the current ATH for mining cost. this is not to say BITCOINS underlying value is ATH
but instead finding the cheapest most efficient mining cost ON THE PLANET, is the BOTTOM value. AKA the underlying value

like i said all the varied factors of different cost points and price points above that is the speculation zone above underlying value

..
take gold. no one. absolutely no on on the entire planet can mine gold using a spoon and a coffee filter in their backyard for a $1 cost.
so gold value is not $1. becasue no one can achieve that.

and yes there are land leases around the world where by if people did mine gold on. their costs might end up being over $2k.
but again this does not mean that golds value is $2k
golds underlying value is about $900 because thats where pretty much only the most efficient gold miners can gold mine for. (knowing there are other speculators mining above this point).

and yes.. for emphasis people individually do have their own cost points their own point at which they decide or desire to mine or buy at. but thats the speculative zone of price finding/volatility above the underlying cost no one can buy below or sell for to break even.

this value can and does change over time. and for emphasis (seems i have to repeat things 20 times before blackhatcoiner, etc bothers ready it witohut his defense hat on)

the VALUE does not move as quick or as volatile as the PRICE

[tadamichi]

there is a underlying value (not seen in the market) this value is NOT the market price.
its a number that sits below the market price

EG golds VALUE is not the ~$1,700 currently.. golds underlying value is about $900 at the moment

I have question out of interest franky. Idc much about definitions outside of academia, but why do you call total production costs, underlying value? I agree that total production costs are important, in fact it’s one of the most important metrics in accounting. Im just interested why you’re choosing this definition. In my mind value means something else, i could produce bs for high costs, but it doesn’t mean it’s value is high. Sure this doesn’t apply to Bitcoin or gold tho, but just saying.

[franky1]

the underlying VALUE is a number

the values (note the 's') is different.. values is the reasons. the desire, the utility values that create the sentiment of peoples wants, needs and desires to then use it.
(its plural for reasons)

there are lots and lots of different sentimental reasons lots of people have.(plural) there are lots of price points people think is their "values"(plural).. but if you find the BOTTOM number of all of that. the number where everyone wont sell below. EG the cheapest on the planet to acquire. but not foolish to sell below.. then that bottom number thats the underlying value

and no its not the market price temporary low of the day/week.
the underlying value is a number below that

all the whimsy of lots of different idea's(plural) above that number is the speculative stuff., of values(plural)

underlying value(singular bottom) is different then values(plural whimsy of variance at the same time)..

..
intrinsic
is about value found in of itself...
meaning its not like 1920's fiat that was valued due to being backed by gold. because fiats then had no intrinsic value it had gold value.

intrinsic is about the stuff unique to bitcoin for bitcoin and about bitcoin not other things

EG
LN is not intrinsic feature of bitcoin because LN bridges and pegs to other networks.. LN can function and create channels without bitcoin.. and yea LN has no economic value in of itself. it borrows value from blockchains.

[edgycorner]

if the price falls too low then selling would slow down

I don't think it's that black and white, a drop in price could easily accelerate selling. Thus creating more supply than demand itself. This is why it has never been this easy to predict bitcoin's price.

As for bitcoin's cost of production, it has almost no effect on the price or circulation imo
19 million bitcoins are already minted, that's enough to keep the circulation moving.

There have been many instances where mining is not profitable, but people still do mine. They don't lose faith in the market. Whatever they are mining today, will be sold in the future at a better price.

At some point, it does become more convenient to buy bitcoins with fiat directly rather than through an electricity bill. This is where small miners sell their rigs and move on. But big miners will keep on grinding solely because of their faith in bitcoin.

[franky1]

if the price falls too low then selling would slow down

I don't think it's that black and white, a drop in price could easily accelerate selling. Thus creating more supply than demand itself. This is why it has never been this easy to predict bitcoin's price.

As for bitcoin's cost of production, it has almost no effect on the price or circulation imo
19 million bitcoins are already minted, that's enough to keep the circulation moving.

There have been many instances where mining is not profitable, but people still do mine. They don't lose faith in the market. Whatever they are mining today, will be sold in the future at a better price.

At some point, it does become more convenient to buy bitcoins with fiat directly rather than through an electricity bill. This is where small miners sell their rigs and move on. But big miners will keep on grinding solely because of their faith in bitcoin.

the PRICE has some control from mining wher mining sets the window of expectation the price sits within. (im not talking about daily whimsy of PRICE being what mining affects. im talking about the min-max ultimates of MINING affects that where prices sit within where ever they are)
if you find the bottom underlying value.. and also the most expensive mining on the planet. you find the window..

call that a values window..
for demo purpose only.. lets take a 2021 demo window of $15k $70k(ultimate mining bottom and top(demo number))
people in japan(most highest energy cost. would and could mine at $70k. but then so could everyone else (everyone else has cheaper mining costs than japan)
meaning if the price went over $70k people wouldnt hype by buying it anymore, because everyone on the planet including inefficient miners could mine it for less.
and thats why the PRICE dried up of buy orders above $70k

it never reached $100k because it was never expected to if you find the window

if people can acquire it for less then the price. why would they buy it when they can acquire it for less.
and now you see why the PRICE topped out at $70k even while people said $100k..

same with the bottom if no one can acquire it below say $15k then no one will be able to get it for less but if the price was down that low lots of people would want to buy it because they are many people with higher mining costs so its cheaper to buy..
so when it reaches the bottom the cheapest acquirers wont sell for a loss. so the sells drop out.
and the strong buyers keep buying to make the prices stay/rise again
..
as for the speculation of the other stuff quoted

shorting is a thing.
if enough people think the price can shift down further.. they will be their own cause of it.. by shorting
they become the new sellers risking a loss to hope they can buy in cheaper..
idiots can be idiots and so they dont always win. but they can try and this can cause a very temporary and unexpected temporary drop below expectation..

as for the "mining is not always profitable but people still do mine"
you have to forget the idea that everyone mines at the same cost..
everyone is not mining at the same bottomline cost. where everyone loses.
forget a scenario where everyone mines at same cost where some mine for years at continual loss. thats just not how logic/business/savvi investors work..

however.. people that remain are the most efficient costs.. they are the last ones to give up..they are the ones still winning..
but the more expensive miners giving up first and when they do, they give a bigger reward slice of a block to the remainers. more coin for the same work load of efficient miners =more profit for the remainers. even when the price is down. the remainers win more.

the ones that dropped off because the price is lower then their higher cost. then see the market price then becomes their discount ground to get coin..(cheaper to buy than mine).. they then help by being buyers instead of sellers and they push the price up or keep it from pulling down

[tadamichi]

all the whimsy of lots of different idea's(plural) above that number is the speculative stuff., of values(plural)

I disagree, if there was no profit margins, there would also be no incentive to work or to create anything. Who doesn’t wanna get paid for their work? It is not speculative, for a metal your definition might work fine, but for other things not so much. The market matters too, you can’t fully explain it away. Because optimising the production costs of something, doesn’t make it worth less. Especially if the other market participants couldn’t catch up yet. And just producing expensively doesn’t determine high value.

People can be forced to sell at losses, if their product doesn’t satisfy the market. If i build an ugly, slow, ultra expensive car by hand, that isn’t better than an average new car, but costs 10 times more. No one will buy this, and it doesn’t matter how much it cost me produce, with running costs it will force me to keep lowering the price until the market is fine with it. The market is like an reality check, to see if it was really worth that much in that moment in time.

Production costs alone are not value, they’re just production costs. Also miners aren’t the only people selling Bitcoin on the market, with your theory you can’t explain what the other participants are doing. The natural bottom set by production costs can be broken if the good looses its demand. If it’s like gold or bitcoin this theory might work fine enough, because they’re highly in demand. Also with gold or bitcoin you have something relatively fungible, but for products that are completely different from each other, it gets harder and harder to determine the underlying value, it’s definitely not set by production costs in these cases.

And we didn’t even get into the point BlackHatCoiner made yet, which i think is important.

[BlackHatCoiner]

PRICE is the market..

Price is the market value.

if you avoid saying "market value" and say "market price" you gain one step forward in understanding.

There's no "market price", I've never heard of this term. Price is how it's valuated in the market, ergo market value.

then realise you cant see the VALUE on the market order book.. its beneath the price you see..

"VALUE" is vague. Explain yourself. There's market, personal, intrinsic value etc.

gold and bitcoin have a underlying value.. the lowest anyone can mine for. in both

But, it isn't fixed for bitcoin, that's the difference. If demand drops by a lot, so will the "underlying value" which makes it therefore non-underlying or just unessential measure.

[franky1]

to blackhatcoiner
i have already explained to you and other readers that YOUR confusing of the 3 words "value" "values" and "prices" is your misunderstanding of trying to deem them as  the same thing. they are not the same thing. now go separate them in your own mindset.

i find it funny that your even trolling to say you have never heard of the word "price" in your life.. but hey. you do make me laugh

one thing i will agree with you is that while you can only see the market, you think its al speculative. that is correct. but that does not mean that there is not a intrinsic value below your narrow mind view of only looking at the market.

have a cup of coffee and take some time to think beyond the randomness of speculation zone you have focused on


to tadamichi
one more time. this time with emphasis

the underlying bottom number is not the number that everyone has a cost at .. as they all have different ideals, price points and values((plural)sentiments(not to be confused with value)) of their desires and demands..

those with higher costs.. stop mining at their level.. but that just helps out the others with lower costs that remain..

all that variable stuff of different costs and price points is the speculation layer ABOVE.

here is a game for you
calculate the cheapest asic you can buy. the most efficient. calculate its energy cost to mine at the cheapest available electric in a region that can cope with mining. find the luckiest hashrate of a period to have the lowest mining cost on the planet!!

then take another number  for the highest energy cost of the most reasonable asic thats not as efficient but not stupidly inefficient that no one makes profit over(the cut off point of inefficiency.) and use that as another number

lets for demonstration sake to save you time call it a $15k to $70k window of 2021

now go find a random number generator and produce as many variable price points between all this as you like. give them all of your wonderful idea's of pricepoints each have, like an american residential hobby miners higher price point than a kazakhstan efficient price point. designate some of them random numbers as the buyers with different ideals sentiments, desires, demands for their price points..
have some fun trying to figure out all the variables of the market speculation of different people.
designate others where some are making profit and some are not currently so given up the idea of selling and found their "hoard and hope personal pricepoint they wont sell below
 
once you waste hours having fun with all that.. here is the thing you need to do.
forget all the thousands of dots you have scattered around. and look at the lowest number you can find..
 if you are then seeing another number below that.. the forget the first low you found and use only the actual low you have.

emphasize your mindset to that lowest value point you can find
and thats the number im talking about..

so for emphasis.
stop looking at a market chart.. you will not find the UNDERLYING value on a market chart. sorry just no, its not there.
the market chart is the sentiment layer of speculation above value.

.. everyone has their own personal pricepoints and sentiments of their values(demands desires, views on the values(features and benefits)) but the underlying value. is at the bottom of all that


when everything is good, everyone is positive everyones making profit and buyers are really demanding it, the PRICE is high and the price is a big gap away(higher) then the underlying value.. people call these the bubble events where the price is very very premium and highly speculative above value

when things are negative and people dont see the benefits and demand isnt there and some higher cost miners are making losses and give up. to instead maybe just wait.. or(insert variable)
the market price declines back closer to the underlying value.
but that underlying value is still not the days closing low or the hourly dip.
the underlying sits below all that. so dont try talking about market price stuff when trying to find the underlying value. its a separate number at the bottom away from the active price

if you are finding many variables of different peoples personal price points of wanting to buy or sell, any variable,, then you have not found the bottom.
the bottom is the bottom, the under number, the bottom, they beneath number, under beneath bottom under beneath bottom, where all are unwilling to sell below because they would rather hoard and hope. rather then sell

and no im not talking about some guy with middle range hoard and hope costs where you then try to show another guy whos number is below that to say that im wrong..
if your finding another number below any number your thinking of.. take the BOTTOM number. the ultimate bottom number of all speculative assumptions.
find the bottom number of al variables and you have the underlying number

...
maybe people need a visual demonstration

this chart below is NOT, i repeat and emphasise NOT made where the orange and grey lines are metrics of anything to do with market price data.

no market price data has influenced the orange and grey number at all
its purely the most cheapest mining cost on the planet(orange) and the most expensive mining cost on the planet(grey)

the chart below that.. then and only then puts the market price(blue) into the chart. for a visual aid

and you start to see..
the price does not go above the top and it doesnt hit the bottom.

the underlying bottom(orange) is below all the sentiment of individuals different buy/sell price points of the markets whimsy

whilst some people want to talk about the whimsy, variable, speculative stuff of the market price and all the variable sentiments of features utility desire and demand of emotional choices of randomness each person has compared to other people..
this topic title is about none of that.
its about the underlying "monetary value" in of itself

i get all your speaches about the randomness of different peoples ideals. and the variances. but get to the bottom of your examples. and you will find what is actually being asked by the topic creator

[yhiaali3]

In my opinion, the cost of bitcoin mining determines the minimum price of bitcoin and not the existing price, because we have seen the rise of bitcoin to the price of  70,000$ per bitcoin while the cost of mining is much lower, also the bitcoin fell to about  3000$ earlier while the cost of mining more than that, so If the cost of mining bitcoin costs about $20,000 for example, and the price of bitcoin is lower than this figure, the miners will not sell their bitcoin for less than the cost price, but rather they will store it waiting for the price to rise, this will lead to less supply and higher prices.
But if the opposite happens and the price of bitcoin is much more than the cost of mining, miners will sell all their bitcoins, thus increasing the supply and lowering prices.

[tadamichi]

i get all your speaches about the randomness of different peoples ideals. and the variances. but get to the bottom of your examples. and you will find what is actually being asked by the topic creator

You have a point about some resistance of bottom price levels, in theory it could break, but in practice its usable for now. If you wanna call it underlying value personally its fine to me, for me its production costs. It will be interesting to see how this effect plays out as less/ no new Bitcoin will be produced, and when one day things are possibly paid and accounted for in satoshis.

The mechanism being that if the price falls too low then gold mining would slow down in response and supply would decrease therefore increasing price.

But this specific part isnt happening in Bitcoin, because the supply is perfectly inelastic(its the same no matter how much mining is done) and we have difficulty adjustements(less miners, easier mining). Leading to much more volatility than gold.

I suppose a simpler way to ask my question would be this: If (according to the book I'm reading) the fact that there are real monetary costs associated with "producing" gold means that there is a kind of "parachute" that helps to prevent its price from falling too low, then why doesn't the electricity cost of mining blocks have exactly the same effect on bitcoin?

If the price falls too low, it would make mining easier again(if many miners had to stop), meaning old cheap machines could be profitable again/ and asics will get cheaper(if bankrupt miners are selling), bringing the bottom down. It all depends for how long this is happening, in practice the demand is strong, so bottoms are probably holding around the levels franky described for some time. Also its hard to realiably find bottoms for energy prices, because its possible to get electricity for 0 cents or even getting paid for using energy(ik crazy).

Its based on demand, because without demand the costs to produce new Blocks could come closer to 0 again, if this spiral goes on for long enough(if the mining difficulty reaches 1). We essentially saw this when Bitcoin started and people were just giving Bitcoins out for free, the difficulty increases with demand over time, making mining more and more costly and building some temporary resitances on the bottom price. After this theory Bitcoin didnt have an underlying value once, so how did it even start to increase? Without demand the underlying value could have never increased as there would be no new miners.

[franky1]

Its based on demand, because without demand the costs to produce new Blocks could come closer to 0 again, if this spiral goes on for long enough(if the mining difficulty reaches 1). We essentially saw this when Bitcoin started and people were just giving Bitcoins out for free, the difficulty increases with demand over time, making mining more and more costly and building some temporary resitances on the bottom price. After this theory Bitcoin didnt have an underlying value once, so how did it even start to increase? Without demand the underlying value could have never increased as there would be no new miners.

your still mentioning price and markets. even when using examples of an era when there were no markets..
.. please put the market price talks to the side, lock it in a box hide it under your bed and dont think about it for a while..
value is not the market stuff..

lets explain, (maybe 12th time lucky) you(many readers) might get the idea to not think about "price" (not a personal attack against one person, many are still price obsessed)

anyways
back in those days of "when bitcoin started".. there was no "market" so again forget about any market price metrics or buzzwords you want to insert when describing value and values.
get back to basics

even when there was 1 person mining in january 2009 and a week later 2 people the economic value was low. it was passive. they were using their computer anyway so the cost was so negligible they were not thinking about it, but the cost was there. but because it was negligible they didnt see it in a big neon sign

the features and benefits spoke for themselves or atleast intrigued people to want to try bitcoin to see if it really did what the white paper said it did..
this demand was on the nerdy features mainly. with a little bit of the economic stuff about deflationary. but not price based..

the demand aspect of values(plural) was not price based nor economic number(value). again there was no market in those days.. it was desire and seeing the sentiment of utility/function and the intrigue of trying it to see if it really did work,  that gave people the desire to need or want to grab some to use it
well thats one layer ABOVE of the economic value that has a cost..(mining cost)

where the cost+demand then introduced the opportunity to sell on the eventual markets that came later.

so again
the desire based on the utility, features, benefits, fascination.. then commanded the rise in the demand. is the values(sentiments of utility/features/benefits) (not the value) (not the price)

ok maybe easier explained if seen in the form of layers..
lets start building the layers (bottom up.. bottom  does change but is more stable slow movements where the higher you go up the layers the more variables and random and volatile things get)

5 price
4 speculation
3 demand
2 values(sentiments of desires, features benefits)
1 VALUE(cost)

heck you can even think of them as separate groups which might help people see the reactions of one end effect the other depending on the net effects of each group
EG 543      432      321
where 3 can effect 1(rise or drop of 1) but 5 does not directly affect 1
where 3 can affect 4 and 5. but not affect 1 to the same scale/amount

some may be asking where is "supply", the answer is in the 2 category of the features and benefits
some may not like the order of the layers. and well thats for another discussion. but atleast get passed the concept of "price=value" or "demand=value" first. then the conversations can get more interesting/productive
..
values(sentiment) change. like in 2010 its values(sentiment/features benefit) were nerdy reasons and such. these days its values are more about the features offering investment and deflationary and more of a greed of potential riches stuff.. and not so much about the nerdy stuff anymore

but these sentiments of desires of features/utility are values (but not the economic value)
its these values that help push the demand

which is why for multiple posts i have been trying to get people to realise the difference between price value and values

underlying value. is PART of the intrinsic wait for it  "values"(plural) as are the utility and function stuff.
but some people when speaking of an intrinsic value(singular). they are looking for a economic number of value(underlying cost). which bitcoin is backed by(preventing a 'down to zero by midnight) without needing to be pegged by something else.

other people looking for intrinsic values are looking for the features/utility unique to bitcoin which give bitcoin the demand and desire to have and use it.

..
i hope people can start to see the different layers and are no longer just seeing the "price" as being the "value" and "values"

as to a few people that do see price as "value"
maybe you have never seen words like "cheap" "expensive"
cheap is when the price is near value.. expensive is when price is premium, far above and far away from value.

the price is not value. and it helps you in the world to not see the price even when stupidly high being "value" because thats when you have the most chance of losing

so learn to find value at the bottom. not the top. it may save you some money when buying anything when you find the value and then look and see if the price is near value or if the price is expensive and at a premium far above value, it helps you make good economic/finances decisions.

by seeing value at the bottom. you see the layers. and you see all the things that build up from it to finally get to a price on the top layer. and you start to see all the buffers inbetween that need to break to affect the underlying value. where you begin to appreciate the buffers inbetween and can start to then analyse better how each of the buffers affect each other whereby it affects the PRICE quick and volatile and random.. where as it affects the underlying value slow and progressively.

yes the underlying value can do down. but once you understand all the layers to start to see the value is not hit by price instantly when there is a price crash. you may start to see the finer details inbetween play out. where
things like less hash competition gives more slice of reward to the remaining miners thus raising their profits allowing them to many mine more and have more costs because they can afford it even when the price is in a decline.
yep some very efficient miners mine more when they get more coin due to les competition. yep it happens more often then you think

anyways
good luck
i hope all readers of these posts can atleast look beyond the PRICE and start to see the layers beneath, which build up the value and values that build up the sentiments of desire, where (from bottom up) the variables get more widespread and the speculation as you go through all the layers builds up more speculation which affect a price depending on how much speculation and sentiment there is and how wide it is when everything is super positive in demand and happy. and when speculation is less when there are negatives and not as many happy demand and sentiment

[RealMalatesta]

In my opinion, the cost of bitcoin mining determines the minimum price of bitcoin and not the existing price, because we have seen the rise of bitcoin to the price of  70,000$ per bitcoin while the cost of mining is much lower, also the bitcoin fell to about  3000$ earlier while the cost of mining more than that, so If the cost of mining bitcoin costs about $20,000 for example, and the price of bitcoin is lower than this figure, the miners will not sell their bitcoin for less than the cost price, but rather they will store it waiting for the price to rise, this will lead to less supply and higher prices.
But if the opposite happens and the price of bitcoin is much more than the cost of mining, miners will sell all their bitcoins, thus increasing the supply and lowering prices.

That is not the case, it drops under the cost of mining one bitcoin, it has happened before and it will happen again. What we need to focus on right now is to get it done by no intrinsic value but just market value. Which means that whatever you and I think it should worth, is the price and that is the value of bitcoin. Sure it is not just you and me but it is the general public and the investors.

If we think it's overvalued then we sell and the price goes down, if we believe it's undervalued then it goes up and that is why we decide what the price should be and we decide what the value is. That's why there is nothing wrong with the current situation.

[franky1]

In my opinion, the cost of bitcoin mining determines the minimum price of bitcoin and not the existing price, because we have seen the rise of bitcoin to the price of  70,000$ per bitcoin while the cost of mining is much lower, also the bitcoin fell to about  3000$ earlier while the cost of mining more than that, so If the cost of mining bitcoin costs about $20,000 for example, and the price of bitcoin is lower than this figure, the miners will not sell their bitcoin for less than the cost price, but rather they will store it waiting for the price to rise, this will lead to less supply and higher prices.
But if the opposite happens and the price of bitcoin is much more than the cost of mining, miners will sell all their bitcoins, thus increasing the supply and lowering prices.

That is not the case, it drops under the cost of mining one bitcoin, it has happened before and it will happen again. What we need to focus on right now is to get it done by no intrinsic value but just market value. Which means that whatever you and I think it should worth, is the price and that is the value of bitcoin. Sure it is not just you and me but it is the general public and the investors.

If we think it's overvalued then we sell and the price goes down, if we believe it's undervalued then it goes up and that is why we decide what the price should be and we decide what the value is. That's why there is nothing wrong with the current situation.

a person in japan has a mining cost this week of $9Xk and sees the market price as $20k so sees it PERSONALLY in their unique sentiment as being super cheap. but this is part of their personal sentiment. their personal speculative price point desire

a person in kazakhstan has a mining cost this week of $1Xk and sees the market price as $20k so sees it PERSONALLY in their unique sentiment as being profitable and a premium where they personally prefer to mine to sell rather then buy.

but thats the personal whims of speculation. all the randomness of different people.
these pesonal unique different price points different people desire and hope and want. are all the speculation. there are variable and volatile. thats the market..

the underlying(under, bottom) is the point no one wants to sell below. thats the UNDERlying value below the market

.. the market price is not the value. because many people have many different idea's. there are many layers where some can mine and profit and some cant and prefer to buy. thats the speculation..

the underlying is when you get through all the different variables and find the most basic lowest wall of the bottom point where the variables are all above it. thats the bottom, the underlying