Wow what a rally!

[MoonShadow]

Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.

difficulty drives price? wat?

Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!

Price and difficulty are 'coupled', but I would be inclined to think that price drives difficulty, not the other way around.  Miners can't simply raise prices to cover costs any more than Wal-Mart can, which is to say, only as far as the market will bear.

[asdf]

Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.

difficulty drives price? wat?

Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!

No. regardless of difficulty, the number of bitcoins pumped into the market by mining remains the same. The cost of running a rig doesn't change because of difficulty, only the profitability does. Can you explain the mechanism by which an increased difficulty drives up price?

1. increased difficulty.
2. miners sell.
3.
4. price goes up.
5. profit!

[rezin777]

Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.

difficulty drives price? wat?

Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!

No. regardless of difficulty, the number of bitcoins pumped into the market by mining remains the same. The cost of running a rig doesn't change because of difficulty, only the profitability does. Can you explain the mechanism by which an increased difficulty drives up price?

1. increased difficulty.
2. miners sell.
3.
4. price goes up.
5. profit!

You said it yourself. The profitability changes with the difficulty. So the miners would want to increase rates to combat lower profitability that comes with increased difficulty.

[allinvain]

Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.

difficulty drives price? wat?

Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!

No. regardless of difficulty, the number of bitcoins pumped into the market by mining remains the same. The cost of running a rig doesn't change because of difficulty, only the profitability does. Can you explain the mechanism by which an increased difficulty drives up price?

1. increased difficulty.
2. miners sell.
3.
4. price goes up.
5. profit!

You said it yourself. The profitability changes with the difficulty. So the miners would want to increase rates to combat lower profitability that comes with increased difficulty.

Precisely. They are going to demand higher prices to ensure that they cover their running costs and get whatever profit they desire. You as a buyer can do little if the seller isn't willing to sell. Miners are not likely to want to stop mining, they just try to ask a higher price for their bitcoins because they are more difficult to mine hence to them the coins have higher value to them because of the additional computational work required to mine them.

I hope I'm not committing the fallacy of applying the labor theory of value, but I definitely believe that -as a previous person said it - difficulty and price are "married" together.

[nelisky]

I hope I'm not committing the fallacy of applying the labor theory of value, but I definitely believe that -as a previous person said it - difficulty and price are "married" together.

Well, from where I stand I'd say price drives difficulty more than the other way around... if miners sell coins at high prices that doesn't that's the sum total of coins being sold, and that doesn't mean buyers will be interested... What does happen for sure is miners will only mine while it is profitable, so a lower price means less people mining which then gets the difficulty lower on the next change block which will probably get the miners back in the wagon, as they can find more coins in the same time span, even though the price is lower.

I can't see the individual miner moving the market too much, though I can be wrong of course.

[casascius]

This is how I have asserted that difficulty drives price in the past, the simple question: if you got a bunch of money to blow on BTC, you're going to blow it one of two ways: on mining equipment, or on buying coins.  In the past, I posed the question, who's going to pay $20 for a coin that can be mined for a nickel?

As difficulty goes up, those newcomers who want to acquire BTC are quickly cornered into having to buy them, as at face value, it's not worth dumping a bunch of money into specialized equipment for the purpose.

Right now, at current prices, mining is definitely worth the cost of electricity, but not quite worth the cost of buying brand new mining equipment.  That could change quickly.

If the price shoots up significantly, it will probably result in a resurgence of mining interest.  Right now a 5970 can maybe crank out $50 USD worth of BTC in a little over a week... imagine if those 50 BTC became worth $200 USD (e.g. $4/BTC) and stayed there, at current difficulty it would instantly be very profitable to go buy any number of video cards and start mining.

[Steve]

it would be more accurate to value it in bitcoin -> 100% accurate 
seriously, you dont count your dollars in gold. when you have 3000$ you just think "thats quite a bunch of money" not "thats 100g of gold" or something like that.

I value mine in Big Macs...when I see $3000, I instantly think ~800 Big Macs 
http://www.oanda.com/currency/big-mac-index

[allinvain]

very good point casascius...that's why I'm now hunting my local market for USED 5970s and 5870s

[asdf]

Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.

difficulty drives price? wat?

Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!

No. regardless of difficulty, the number of bitcoins pumped into the market by mining remains the same. The cost of running a rig doesn't change because of difficulty, only the profitability does. Can you explain the mechanism by which an increased difficulty drives up price?

1. increased difficulty.
2. miners sell.
3.
4. price goes up.
5. profit!

You said it yourself. The profitability changes with the difficulty. So the miners would want to increase rates to combat lower profitability that comes with increased difficulty.

Rates? You mean the on average 0.01BTC fee that miners get for each block? I don't see fees affecting the price. Not yet anyway.

Perhaps you mean the ask price that miners set on the exchanges when they sell? This price is not dependent on the difficulty but rather the current market rate driven by supply and demand.

Difficulty is not the only variable determining profitability. Profitability could well go up despite an increased difficulty.

As difficulty goes up, those newcomers who want to acquire BTC are quickly cornered into having to buy them, as at face value, it's not worth dumping a bunch of money into specialized equipment for the purpose.

The answer to the question "do I buy or do I mine?" is a function of the profitability of mining, not the difficulty.

I will concede that a low profitability could affect more buyers in the market, bidding up prices.

[Raulo]

Just an arbitrage between mining contracts and BTC/$ in progress... nothing to see here... move along people...

This is completely ridiculous on two grounds.  First of all, your contracts are a small part of the market and cannot move it. One day of decent mtgox volume is more than you sold during several months (and before you start with the secrecy and that I cannot possibly know it, you make these transaction public by including transactions of known amounts in the Bitcoin blockchain; I don't know if all of them are yours but I do know that there are no more than that). Secondly, how can you imagine such an arbitrage? The only possibility is that people realized mining contracts are not the best way to acquire bitcoins and sold your contracts and bought bitcoins on the market. How can somebody sell your contracts? Do you want a dictionary definition of "arbitrage"? Also, such a move in the market would not say well about your mining contracts if it were a decent chunk and selling your contracts were possible, wouldn't it? It is ironic that you mention it as a positive.

Please, keep your blatant or ridiculous (like this one) advertising to your mining contracts thread.

[marcus_of_augustus]

Euchh, that got ugly quick, maybe a less public place to settle your differences of opinion?

[Grinder]

Just an arbitrage between mining contracts and BTC/$ in progress... nothing to see here... move along people...

Buying a mining contract that values 1 BTC at about $1.27 with the current difficulty and about $1.42 at tomorrow's can hardly be called arbitrage.

[deadlizard]

Just an arbitrage between mining contracts and BTC/$ in progress... nothing to see here... move along people...

Buying a mining contract that values 1 BTC at about $1.27 with the current difficulty and about $1.42 at tomorrow's can hardly be called arbitrage.

Would be not buying a mining contract and instead buying BTC on open market be an arbitrage than?

Actually no. Arbitrage is buying something in one market at a discount and quickly selling it in another market for a profit almost risk free.
But I'm sure you know this already

[Raulo]

Would be not buying a mining contract and instead buying BTC on open market be an arbitrage than?

If you buy a house instead of renting, would you also call it arbitrage? That would be a nice stretch of the definition.

Anyway, I'm glad you declared buying bitcoins on open market instead of via mining contract a better idea. That's what I was saying all the time.

Total hashing amount delivered via commercial mining contracts is not insignificant. Surely, 20-40% of total mining capacity.

You are off by an order of magnitude.
On blockchain there are several recurring payments from zero variance contracts.
1x48.86 BTC = 4GH/s
1x36.64 BTC = 3GH/s
1x24.43 BTC = 2GH/s
5x12.21 BTC = 5x1GH/s
1x1.52 BTC   = 0.125 GH/s

Unless somebody sells 3.1415 GH/s contracts on irregular intervals or utilizes a pool (which is inconvenient for both seller and buyer), the total mining contracts market is 14.125 GH/s or about 2 % of the Bitcoin network. A drop in the bucket.