Constant Downward Pressure Due To Miners?

[bene]

Looking at a 1 yr chart you will notice that Bitcoin constantly get's beaten down since December 2013.
For your convenience: http://bitcoincharts.com/charts/bitstampUSD#rg360ztgSzm1g10zm2g25zv

The November 2013 rise to $1,200 also caused an immense rise in hashing power and difficulty (because mining suddenly was so profitable).
So this correlates.

There is no free lunch, somebody has to pay the immense mining network (electricity, hardware, etc).
It looks like the Bitcoin holders do, because I'm sure that miners have to sell a large portion of mined coins on a daily basis just to cover electricity.
And that's exactly what the charts are reflecting.

Looking at it this way, the downtrend will only accelerate as difficulty rises?

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[bitcoinsrus]

Looking at a 1 yr chart you will notice that Bitcoin constantly get's beaten down since December 2013.
For your convenience: http://bitcoincharts.com/charts/bitstampUSD#rg360ztgSzm1g10zm2g25zv

The November 2013 rise to $1,200 also caused an immense rise in hashing power and difficulty (because mining suddenly was so profitable).
So this correlates.

There is no free lunch, somebody has to pay the immense mining network (electricity, hardware, etc).
It looks like the Bitcoin holders do, because I'm sure that miners have to sell a large portion of mined coins on a daily basis just to cover electricity.
And that's exactly what the charts are reflecting.

Looking at it this way, the downtrend will only accelerate as difficulty rises?

I don't think its the miners. More of the news (we were at 800 comfortably until gox collapsed). Then China FUD, now news of the auction.

[MilesJohan]

Looking at a 1 yr chart you will notice that Bitcoin constantly get's beaten down since December 2013.
For your convenience: http://bitcoincharts.com/charts/bitstampUSD#rg360ztgSzm1g10zm2g25zv

The November 2013 rise to $1,200 also caused an immense rise in hashing power and difficulty (because mining suddenly was so profitable).
So this correlates.

There is no free lunch, somebody has to pay the immense mining network (electricity, hardware, etc).
It looks like the Bitcoin holders do, because I'm sure that miners have to sell a large portion of mined coins on a daily basis just to cover electricity.
And that's exactly what the charts are reflecting.

Looking at it this way, the downtrend will only accelerate as difficulty rises?

No, when difficulty rises. The same miner that produce 1 BTC might produce only half BTC. So the selling pressure should go lower.

[davidgdg]

Bitcoin rate of inflation is about 11% p.a. at present. USD rate of inflation is harder to measure. But let's assume 3%. Thus there is a net annual downwards pressure on BTV value relative to the dollar of about 8%.  This will fall to 2.5% (5.5% - 3%) when the block reward halves in 2016. Of course this assumes no changes in the demand for BTC up or down, which is entirely unrealistic.

[oda.krell]

Yes. To a degree, the current stagnation is caused by selling pressure from miners. I have no way of quantifying how much of it is miners, how much of it might be due to large entities "guiding" the market (what conventionally is called "manipulation" in here, but really isn't) and how much of it is simply due to the larger user/trader/investor base being more interested in selling than in buying right now.

In any case, here's my (semi motivated) opinion on this matter:

- production cost is a price attractor. It neither means market price can never go _below_ that cost (enough momentum and selling pressure from other sources can certainly do that), nor does it mean that it cannot stay _above_ for long. It is good to keep production costs in mind, but there is no immediate way to derive the price from them (although I do believe that the production cost provides a strong point of price resistance, and overcoming it is not easy absent of strong pressure downwards)

- the concentration process of mining since the ASIC revolution has led to, I believe, higher overall selling pressure by miners, in the sense that mining became more professional, and as a result: less ideological about holding. A guaranteed small profit is usually preferable over a large speculative one. I don't want to claim miners throw everything on the market immediately, but I suspect the amount of coins sold vs. coins held for the "Bitcoin endgame" changed towards a higher selling portion.

- I also believe a substantial amount of the coins mined and sold are sold off-exchange, to large entities interested in building a position (like, for example, to launch an ETF). Opinions vary if this creates downward pressure on price or not. One position says that, since coins sold off-exchange are not part of the floating capital, they cannot affect price. I personally disagree: the market and its participants have come to expect certain amounts of fiat being moved to the exchanges and expect trade volume in USD to substantially increase as per coin price increases. If more of the large orders are filled off-exchanged, that fiat is perceived as "missing" and negatively affects the price.

- Finally: opinions differ on what the production cost per coin is currently. I personally think that a number of calculations are too "bullish" in the sense that they overestimate production cost, because they tend to think from the perspective of small to mid sized miners, ignoring that a decent part of current hash power comes from large farming operations that operate on a different cost basis than smaller scale miners. My own calculations arrive at an _absolute minimum_ of around 470 USD per coin, for mining operations that can utilize electricity and employ mining hardware at a greatly reduced cost compared to smaller scale miners.

[jamesc760]

Miners can only mine 3,600 bitcoins a day. That's not enough to put any pressure on the exchanges. Also, not every miner sell the mined coins. I am a miner but I hold on to 90% of mined coins. They're put into a cold storage. You have to be stupid to sell your coins at today's price. We know it's going to be worth much more in a year or two.

[N12]

Miners have operating costs (in addition to hardware amortization costs) . Small miners can cover them out of their income or savings, but professional miners cannot do this and they will sell at least the portion that is needed to cover their expenses on a regular basis. When difficulty rises and price does not match this rise, profit margins decrease and thus more has to be sold than before.

While 3600 BTC/day is largely inelastic, with the advent of ASICs we have experienced the last great technology jump we will have for a long time and pushed profit margins to heights unimaginable, which has lead to a supply shock because miners began hoarding that which has previously flown to the market. This is of course unwinding now.

Here is a a chart with the daily percentage growth of hashrate, which indirectly is indicative of the state of margin profits in the recent past. You can observe that it has been steadily decreasing since ASICs were widely introduced (even before bubble pop).



In short, mining is a business and it is not the business of price speculation.

[maker88]

Looking at a 1 yr chart you will notice that Bitcoin constantly get's beaten down since December 2013.
For your convenience: http://bitcoincharts.com/charts/bitstampUSD#rg360ztgSzm1g10zm2g25zv

The November 2013 rise to $1,200 also caused an immense rise in hashing power and difficulty (because mining suddenly was so profitable).
So this correlates.

There is no free lunch, somebody has to pay the immense mining network (electricity, hardware, etc).
It looks like the Bitcoin holders do, because I'm sure that miners have to sell a large portion of mined coins on a daily basis just to cover electricity.
And that's exactly what the charts are reflecting.

Looking at it this way, the downtrend will only accelerate as difficulty rises?

you think a lower supply and higher demand causes a lower price? if difficulty increase, so will the price. you yourself cited cost of production as the reason miners don't hoard their coins. that cost will increase with difficulty increases.

[tooil]

Miners have operating costs (in addition to hardware amortization costs) . Small miners can cover them out of their income or savings, but professional miners cannot do this and they will sell at least the portion that is needed to cover their expenses on a regular basis. When difficulty rises and price does not match this rise, profit margins decrease and thus more has to be sold than before.

While 3600 BTC/day is largely inelastic, with the advent of ASICs we have experienced the last great technology jump we will have for a long time and pushed profit margins to heights unimaginable, which has lead to a supply shock because miners began hoarding that which has previously flown to the market. This is of course unwinding now.

Here is a a chart with the daily percentage growth of hashrate, which indirectly is indicative of the state of margin profits in the recent past. You can observe that it has been steadily decreasing since ASICs were widely introduced (even before bubble pop).


In short, mining is a business and it is not the business of price speculation.

Good analysis. I am quite surprise some of the BTC mining farm didn't go bust when the capital depreciation cost and operation cost is higher than what they mine.

[windjc]

In other but sorta related news, the immense growth of the hashrate currently has the next halving occurring somewhere around half a year earlier than first predicted based on current growth rates.

Cha Ching.

[JimboToronto]

I am a miner but I hold on to 90% of mined coins. They're put into a cold storage. You have to be stupid to sell your coins at today's price. We know it's going to be worth much more in a year or two.

Bingo. Me too.

The only reason I'm still running my ancient BFL miner is that I haven't had to put the AC on yet and my miner acts as a bit of a dehumidifier since I turned the heating off. Being below grade helps.

I mine directly into a paper wallet. I wouldn't think of selling any coins now. That would just be crazy.

[Este Nuno]

Miners have operating costs (in addition to hardware amortization costs) . Small miners can cover them out of their income or savings, but professional miners cannot do this and they will sell at least the portion that is needed to cover their expenses on a regular basis. When difficulty rises and price does not match this rise, profit margins decrease and thus more has to be sold than before.

While 3600 BTC/day is largely inelastic, with the advent of ASICs we have experienced the last great technology jump we will have for a long time and pushed profit margins to heights unimaginable, which has lead to a supply shock because miners began hoarding that which has previously flown to the market. This is of course unwinding now.

Here is a a chart with the daily percentage growth of hashrate, which indirectly is indicative of the state of margin profits in the recent past. You can observe that it has been steadily decreasing since ASICs were widely introduced (even before bubble pop).


In short, mining is a business and it is not the business of price speculation.

Good analysis. I am quite surprise some of the BTC mining farm didn't go bust when the capital depreciation cost and operation cost is higher than what they mine.

I think lots of miners have gone bust so to speak. Lots of people have been forced out of the mining market in the last year.

[CoinDiver]

Blaming miners is like blaming dollars for inflation. The price reflects the market. There is a supply, and a demand. Both move constantly, and the price is the intersection. 25btc/10 minutes affects the supply. That is all.

[Benjig]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

[Bogleg]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

If they are smart, they would have known it would be cheaper to buy coin directly rather than to mine for it.

[BTC_Fundamentals]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

If they are smart, they would have known it would be cheaper to buy coin directly rather than to mine for it.

Miners are miners, not neceserly investors.

[Raystonn]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

If they are smart, they would have known it would be cheaper to buy coin directly rather than to mine for it.

Miners are miners, not neceserly investors.

Many miners confuse profit from speculation with profit from mining.  "If BTC goes down such that mining is unprofitable, we can hold the mined coins until it goes back up" is heard often.  But this is illogical.  Shut off the miners at that point and simply buy the coins you would have mined.  You will pay less than it costs to run the miners.  This will also serve to prop up the market such that the mining profitability point will serve as massive support line.

[Este Nuno]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

If they are smart, they would have known it would be cheaper to buy coin directly rather than to mine for it.

Miners are miners, not neceserly investors.

Many miners confuse profit from speculation with profit from mining.  "If BTC goes down such that mining is unprofitable, we can hold the mined coins until it goes back up" is heard often.  But this is illogical.  Shut off the miners at that point and simply buy the coins you would have mined.  You will pay less than it costs to run the miners.  This will also serve to prop up the market such that the mining profitability point will serve as massive support line.

It's funny because people have been saying this for around four years at this point. But it's something that people just don't want to hear. The idea of mining for profit is very attractive to certain people and if they can do it, despite whether or not they would be better off just buying, they just do.

[DannyElfman]

The miners would not sell on lose, at least the smarter ones, so we know that most of the miners are holding at least half of the mined coins for an eventual bubble.

If they are smart, they would have known it would be cheaper to buy coin directly rather than to mine for it.

Miners are miners, not neceserly investors.

Many miners confuse profit from speculation with profit from mining.  "If BTC goes down such that mining is unprofitable, we can hold the mined coins until it goes back up" is heard often.  But this is illogical.  Shut off the miners at that point and simply buy the coins you would have mined.  You will pay less than it costs to run the miners.  This will also serve to prop up the market such that the mining profitability point will serve as massive support line.

This is true, however doing this would also cause their machines to depreciate in terms of bitcoin as they will produce lower amounts of bitcoin as the difficulty goes up.

In reference to the OP, he is correct that there is some pressure on the price of bitcoin from sales from miners, however that has been outweighed by other demand for bitcoin. Miners in general will not sell all of their proceeds as their revenues exceed their "current" costs (electricity) and their "capital" costs are often paid in bitcoin (the miners).

[coinsolidation]

Many miners confuse profit from speculation with profit from mining.  "If BTC goes down such that mining is unprofitable, we can hold the mined coins until it goes back up" is heard often.  But this is illogical.  Shut off the miners at that point and simply buy the coins you would have mined.  You will pay less than it costs to run the miners.  This will also serve to prop up the market such that the mining profitability point will serve as massive support line.

This is true, however doing this would also cause their machines to depreciate in terms of bitcoin as they will produce lower amounts of bitcoin as the difficulty goes up.

In reference to the OP, he is correct that there is some pressure on the price of bitcoin from sales from miners, however that has been outweighed by other demand for bitcoin. Miners in general will not sell all of their proceeds as their revenues exceed their "current" costs (electricity) and their "capital" costs are often paid in bitcoin (the miners).

Shutting down miners would cause a decrease in production causing difficulty to drop not rise, decreasing the cost of production until it matched the price of demand. Assuming demand was roughly equivalent to the number of coins produced. Which it isn't.

Fair to say that in bitcoin's case downward pressure is not due to miners. As for alternative currencies, well supply outstrips demand on a daily basis, and when it doesn't it's usually because supply is being held back to artificially increase cost so they can be dumped for a higher return.