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Author Topic: Price vs Difficulty Charts - indicators for buying or mining  (Read 72053 times)
k
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June 15, 2011, 08:03:03 PM
 #61

I was thinking price could start outstripping difficulty as the marginal supply constraints on gpus started to stall the growth in hash rate - maybe not at that point yet.

The hash rate still hasn't caught up to the rise in the BTC/USD so there is much room yet for capacity to come online. 


that's true - it's still profitable to mine. I was thinking the growth rate in hash rate could slow down relative to price (who knows where price is going though?). So we could see price continue to rise (over the course of weeks/months, still may see crazy day to day fluctuations but I'm long term bullish) but hash rate not able to keep up so mining could become more profitable especially for the more efficient miners
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June 15, 2011, 09:44:42 PM
 #62

I think it is hard to imagine a scenario where demand outstrips difficulty for any really significant period of time. We might have bubbles of media/public created inflation but... Commercial and public interest will quickly lead to solutions for mining these coins, ASIC, FPGA etc not too long afterwards. The players involved will eventually find an equilibrium to balance it out.

There is a good, old analogy with gold mining in america. The gold rush made a few lucky, early miners rich. The company that sold them all the shovels got absolutely loaded pretty damn quick.


But now here we are back to demand. Gold is tangible, shiny, rare. It's quite easy to understand why people valued trading in it, it was quite obvious to the average joe why having lots of gold was a good aim. Can we do the same on the internet with BitCoins?

Part of the problem is the technological barrier. How many here really understand the way BitCoin operates, i mean, really get it. Not many i imagine and i don't see that may people (my friends included)  become immediately interested when i start talking about private and public key cryptography.

 So my main concern is that bitcoins has thus far been a highly niche interest that attracts a good percentage of the geek and liberal population without really grabbing an equal share of the general public or business interest. Essentially we have too much difficulty and too much coming every day.

If we can break through that barrier, by simplifying and enhancing security AND solving liquidity (amongst others) issues maybe we will see the growth spurt we all want.










maninas
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June 16, 2011, 08:57:35 AM
 #63

As seen here:
http://bitcoin.sipa.be/growth.png
the Bitcoin network's computation speed growth is certainly not in the decline, nor even leveling out.

As for your concerns, I can clearly see the validity in them. It is a niche/geek currency us of now. Nevertheless I also do believe that there are some people out there trading/mining that wouldn't really be classified as geeks, but rather were brought here following the media buzz looking for some "easy money" and or investment.

That said, as the situation is leveling out following last Friday's correction (read exchange abuse, could easily have been the start for a long lasting exponential price boom where it not for the abuse, if you ask me), transferability and user friendliness of Bitcoin will have the much needed time to increase and provide the opening for larger masses and the foothold to sustain bubble-less price increases that bring the price/difficulty ratio to the orders of ~3:1 again.

I can only be sure that as we speak there are numerous projects and services under development to further support the Bitcoin economy and after a short period of about a week or two, until the market regains it's trust and all faint hearted bitcoin owners have sold out, we are in for another bullish rally following the miners' raised mining costs due to the last difficulty change.

Besides, mainly due to the -until recently- immense daily growth, most projects out there have been rushed to the public at a proof-of-work quality standard because they had to be out there as soon as possible.

And that actually leads to my main point:
Since we have been brought here after last Friday's market correction/exploitation, the Bitcoin economy has been granted precious time to catch it's breath and take advantage of, reinforcing the market with modernly designed, accessible, user friendly, secure services that will drive the prices through the roof. As soon as that happens, leave the rest to the media, and the people will flock.

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June 17, 2011, 08:43:25 PM
 #64

If you use a diffiulty estimate and not the real difficulty, you are rather comparing with the network hash rate than "difficulty", just saying.

Yes, and at times this difference can be important in terms of supply fundamentals.  One common misconception about bitcoin is that supply is "fixed."  Eventually it is (22 mil) but the 6/hour rate is not fixed at all.  During periods of rapid network growth the production of bitcoins is borrowed from the future since the lagging difficulty calculation causes the block production rate to increase well above 6/hour.

The obvious (though not necessarily correct) inference from bitcoinBull's latest chart is that this is a good time to buy since the ratio being near 1 has been the bottom end of the trading range historically. 
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June 23, 2011, 06:32:13 AM
 #65

what as goxgate done to these ratios?

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July 05, 2011, 02:24:19 AM
 #66

July 4 Update - Moment of Truth







As the last chart shows, the price over difficulty ratio is approaching the historic low below 1:1.

Here's what I said shortly after the crash from $30 to $10:

Unless price suddenly recovers, the next weeks will test the theory that difficulty is a fundamental indicator which can drive price, for the second time (first time was the previous low in March).  Will it follow the 50% or greater drop in price, and enter a negative feedback loop?  Or will it stay and support a price over $10? 

Difficulty has held steadfast, and is now on target for ~1.5 million for the next readjustment.  Price broke the strong support at $15, and is now between $13-$14.  That puts the ratio below 1:1, approaching the historic low reached in April when difficulty was at ~100,000 and price was around $0.75, and had briefly dipped to $0.59, setting an absolute bottom of the ratio to around 0.6.

If bitcoin history repeats itself, we could see a brief price dip to $10.00 while the difficulty estimate is ~1.5 million, which would place the ratio at 10/15 = 0.67.  Then price recovers from the ~$10 low, rising slowly at first and then more quickly, spurring a rally and difficulty increases afterwards.

Otherwise, price could break through $10 and "free fall" (quoting S3052), setting record lows for the ratio.  In that case, all bets are off.

I remain bullish on bitcoin and my bet is still on.  Difficulty is still holding steadfast.  I predict the price has either already bottomed or it will bottom before $10, then recover until faith is restored and another rally ignites.

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July 05, 2011, 04:50:58 AM
 #67

excellent analysis...sent another .02
done
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July 05, 2011, 06:56:18 AM
 #68

Great graphs. Thank you for your contribution to the community.
Enky1974
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July 06, 2011, 04:42:12 AM
 #69


Difficulty has held steadfast, and is now on target for ~1.5 million for the next readjustment.  Price broke the strong support at $15, and is now between $13-$14.  That puts the ratio below 1:1, approaching the historic low reached in April when difficulty was at ~100,000 and price was around $0.75, and had briefly dipped to $0.59, setting an absolute bottom of the ratio to around 0.6.
So we have 0.6*1.5=9$

It is not a coincidence that 9$ is an old important top and now is support, as i pointed out in my last post http://btctrading.wordpress.com/2011/07/05/long-term-update-mtgox-2/
It will be hard to broke 9$ without a drop in difficulty.
Good job bitcoinbull, i sent you 1 btc.

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MtRev
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July 06, 2011, 04:51:50 AM
 #70

Any chance we can get a candle stick version of the charts? They give a great deal of information that no other type of chart can give if you know how to read them.

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July 06, 2011, 07:16:05 PM
 #71

This should be a sticky.
hawks5999
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July 06, 2011, 10:32:34 PM
 #72

This should be a sticky.

Or just bumped a lot...

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Litt
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July 07, 2011, 07:18:29 PM
 #73

mmmmmmmm less than 1 ratio... what an amazing time to buy!  Grin Best price ever based on current difficulty to mint a coin.
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July 08, 2011, 12:58:32 AM
 #74

Any chance we can get a candle stick version of the charts? They give a great deal of information that no other type of chart can give if you know how to read them.

Nevermind I found one:
http://bitcoincharts.com/charts/mtgoxUSD#rg60zvztgSzbgBza1gEMAzm1g10za2gEMAzm2g25zi1gMACDzi2gFStochzi3gAroonzi4gRSI

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mvoss
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July 14, 2011, 03:51:29 AM
 #75

I'm finding the Price over Difficulty chart the easiest to interpret.  I've attempted to add some trendlines this time.


As you can see, the lower channel represents short term periods of bear markets.  I like to think of it as the bargain basement.

From the current price of ~$3.50, a steep drop to the top of the bargain basement would be a drop to a price/difficulty ratio of 1:1.  With current difficulty at ~150k, that would be a drop to $1.50.  A drop to the bottom of the bear trap would below $1.00, to some $0.60-$0.70.  That would be below the record low price/difficulty of some 0.7:1, in early april, when the price was around $0.70 and the difficulty was at 100k.

A steep drop doesn't seem likely.  Already, the difficulty estimate looks like it could approach 200k next week.  So if we see a drop over the next week, and the difficulty keeps rising, at $2.00 we'd be at the top of the bargain basement.

An even slower correction.  Let's say over the next 4-6 weeks difficulty keeps increasing to 300k, and price declines to $3.00.  We're again entering the bargain basement, ready for another surge to the top of the upper channel, from price/difficulty of 1:1 to 2:1, from $3.00 to $6.00.

Those are the pessimistic predictions.  The most pessimistic is that we get caught in the bear trap for a while and difficulty growth slows.  But we would expect to surge out of the trap eventually.

The more optimistic is that price continues sideways with small corrections while difficulty continues strong growth.  In that case the ratio declines, approaching the bargain basement, but rallies from somewhere in between.

The most optimistic is that price increases from ~3.50 as difficulty increases, reaching $4.00 when difficulty is at 200k, and $6.00 when difficulty is at 300k. It crosses over and remains above the yellow line to either retreat eventually, or surge higher towards 3:1, 4:1 in parabolic growth and a return to the level of a bull market back in November.




I'd love to see this chart with stats up to today (minus the scary June crash)
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July 14, 2011, 06:36:19 PM
 #76

July 14 Update


(Linear Chart)



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carbonc
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July 14, 2011, 06:45:26 PM
 #77

This is going to be a long couple of weeks/months ahead.
<1 ratio for a while is hurting us poor miners.

Having to hold the coins hurts.
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July 14, 2011, 06:51:30 PM
 #78

Any chance we can get a candle stick version of the charts? They give a great deal of information that no other type of chart can give if you know how to read them.

Yes, there could be price candlesticks on this chart.  Right now the price used is the weighted average (weight = volume), so the crash from $30 plots to about $18 because the majority of the volume during the crash traded around $18.

I have a vision of a real-time javascript chart with mouseover tooltips of the ratio line showing the actual price and difficulty at each point (and candlesticks would be cool too), but I don't have the time.

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July 14, 2011, 07:40:33 PM
 #79

I remain bullish on bitcoin and my bet is still on.  Difficulty is still holding steadfast.  I predict the price has either already bottomed or it will bottom before $10, then recover until faith is restored and another rally ignites.

Price bottomed at $11 on July 5, and bounced to $16.5 on July 6.  The rally hasn't come, but we've seen several patterns of bullish consolidation (sideways movement under low volume) and pushes towards trend reversal.

So we have 0.6*1.5=9$

It is not a coincidence that 9$ is an old important top and now is support, as i pointed out in my last post http://btctrading.wordpress.com/2011/07/05/long-term-update-mtgox-2/
It will be hard to broke 9$ without a drop in difficulty.
Good job bitcoinbull, i sent you 1 btc.

Thanks Enky.  I'll send you back 0.5 BTC when we bounce from $9 to $18 Tongue

Great work in your blog.  The question is indeed when will the trend reverse?  We're definitely in a short term bear channel right now (or the bargain basement, as I like to call it).  By your longer-term analysis, we would expect to see a break out of the trend later this month (around the 20th of July as you predicted back on the 5th), with a bounce from $9-$10 or higher (or at the least, bullish consolidation followed by a rally).

So on the ratio chart, we stay around 1:1 and and see a double dip (first dip was the 5th to $11, second dip still to come), similar to the prior double dip after coming back from $1.10 in late February (first dip in early March and second dip in early April).


Currently, I'll note a couple of externalities which are probably having an impact and preventing things from going smoothly.  First is the SEPA problems with MtGox's French bank.  Things are fine in the US with dwolla working smoothly, but MagicalTux has stated that more funds come from Europe than the US.  And secondly, there is the constant DDoS attacks on the biggest pools, Deepbit, BTCguild, and slush, which have been interfering with difficulty growth.  Then of course there was the MtGox breach (from which they made a spectacular recovery within the week).

These technical difficulties may affect the timeline, so that we see the reversal come later than predicted, after they are sorted out.

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Enky1974
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July 15, 2011, 08:04:36 AM
 #80

Currently, I'll note a couple of externalities which are probably having an impact and preventing things from going smoothly.  First is the SEPA problems with MtGox's French bank.  Things are fine in the US with dwolla working smoothly, but MagicalTux has stated that more funds come from Europe than the US.  And secondly, there is the constant DDoS attacks on the biggest pools, Deepbit, BTCguild, and slush, which have been interfering with difficulty growth.  Then of course there was the MtGox breach (from which they made a spectacular recovery within the week).

These technical difficulties may affect the timeline, so that we see the reversal come later than predicted, after they are sorted out.

I've thought the same, from mtgox website "Going forward, we expect some changes to how SEPA transfers will work once we get setup with our new Bank (which we will announce on July 18th)"  i think that around monday 25 July the new funds coming from europeans investors will be available for trading, this new influx of money could help to reverse the trend.

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