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Author Topic: Price vs Difficulty Charts - indicators for buying or mining  (Read 72074 times)
gnaget
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July 18, 2011, 06:20:04 PM
 #81

I miss this thread, and wish to see its revival.  Make it so
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gnaget
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July 20, 2011, 04:40:34 AM
 #82

Felt we needed an updated chart, so I put together a quick php script to compile the data.  The axes aren't pretty, but the data is sound.



A couple notes, the green is difficulty, the pink is price, and the blue is the price / difficulty ratio.  Right now, we are at .8 price to difficulty, higher being better.  Obviously, we are at a low point for mining, in fact at near the lowest point it has ever been.
gnaget
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July 20, 2011, 05:14:36 AM
 #83

sorry, decided I like this one better, the axes are aligned, so when price and difficulty intersect, the ratio is exactly 1

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July 20, 2011, 05:35:44 AM
 #84

These are fascinating graphs. Thanks for sharing.
gnaget
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July 20, 2011, 04:54:19 PM
 #85

I just realized that while the price / difficulty ratio is relevant now, it will need to be expanded next year to reward / difficulty ratio. 

The formula will be more like (reward/50 * price) / difficulty.  This way when we get half the BTC for a block generation, it will result in an appropriate decline in the ratio.

By the way, I have that graph auto updating every day.  I'd release the URL, but it is my home connection and for security purposes I find that a bad idea.  I'll update this thread periodically with the graph.
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July 20, 2011, 05:42:36 PM
 #86

nice graph, could you pick a darker version of colors? pastels look bad on white, hard to read. otherwise, nice work keep them up.

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gnaget
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July 20, 2011, 07:10:55 PM
 #87

Believe me, I'd love to change the colors, for some reason JpGraph doesn't want to capitulate to my demands.
gnaget
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July 20, 2011, 07:42:47 PM
 #88

Better colors, and I added a legend.  Had to move to an older version of jpgraph to get the colors to change



Edit: added weight to the lines
bitcoinBull
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July 20, 2011, 08:39:08 PM
 #89

Nice work!  I had been wanting to plot the three sets on the same graph..

I see you are using the actual difficulty factor (readjusted every 2016 blocks).  How are you plotting the price? 

I like being able to see the drop to $10.50 from $30 and the bounce to $25 on your chart.  That's not visible on mine because I use the weighted average price over the 504-block window for the difficulty estimate.

Another formula to use when the reward is halved from 50 to 25 would be to multiply the difficulty by 2, which should have the same effect.


How about your thoughts on the correlation?  Are we in agreement that difficulty sets a bottom for the price?

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gnaget
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July 20, 2011, 11:30:35 PM
 #90

I only multiply the price by 100,000, so that if the price is $15, it would line up with difficulty 1,500,000 creating a 1/1 ratio.  This way, when the price and difficulty intersect, I know the ratio.

By (later) using the formula: (reward/50 * price) / difficulty, it will remain valid for every halving, without modification of the formula.

I also think the actual difficulty makes more sense, because the p / d ratio represents the profit made from mining and immediate selling.  Any additional profits are on their own and belong to speculation.  When the ratio gets too low, there is no profit to be made from mining, due to the cost of electricity, equipment, and time.  So in this way, the difficulty would set a bottom to the price.  I am hoping the resistance point is at 1 (would be incredibly convenient), and when it gets below that the miners either drop off, or refuse to sell their btc at a loss, and losing that continuous stream of new btc would drive the price up.  I'm hoping I'm not wrong on this point, because I have a bit of money invested into this, and this low point on the ratio sucks.  I'm looking at an 8 month ROI on my rigs, which was only 2 months not so long ago.

Of course this is all theory.  I think the next 2 months will be interesting.  Barring some more big media on bitcoin driving the price up, the difficulty must go down soon.  There appears to be a 1 month or so lag between price movement and difficulty movement, so we are due.
btcboston
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July 20, 2011, 11:34:33 PM
 #91

Of course this is all theory.  I think the next 2 months will be interesting.  Barring some more big media on bitcoin driving the price up, the difficulty must go down soon.  There appears to be a 1 month or so lag between price movement and difficulty movement, so we are due.

Why would difficulty go down?  Mining is still profitable at current price/difficulty.  There is no reason for anyone to stop mining unless the price drops even further.

gnaget
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July 20, 2011, 11:55:02 PM
 #92

Because, right now the profit is low, and there is no guarantee it won't go down.  All those miners simply running software with their video card, pulling 250 MH/s are making about $2 a day.  45% of the miners on BTCGuild are running less than 300 MH/s.  80% are running under 1 GH/s.  These are those people running video cards in their desktop, and they are dealing with the heat, noise, higher electricity bill, and the difficulty in moving money around.  I'm thinking $50-$100 isn't enough to deal with the hassle, and they'll just decide to move on.  A month ago, that $50-$100 was $150-$300, and yeah that was worth it. 

Again, I may be wrong, and I have no intention of getting out of mining any time soon.  I must admit I'm watching very closely, and I'm holding off on any more equipment until I am convinced the ratio won't be going down any further.  Also, while I believe there is a resistance point at 1, that is not necessarily the case. 
Stephen Gornick
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July 21, 2011, 06:55:33 AM
 #93

Mining is still profitable at current price/difficulty.  There is no reason for anyone to stop mining unless the price drops even further.

Include cooling costs, ... or consider that electricity at its marginal rate can be over $0.20 per kWk and over $0.30 in some areas, and you'll realize that mining truly turns into a money losing proposition at these levels for many.

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July 21, 2011, 10:46:49 AM
 #94

I do not agree, the cost for 1 btc for me is 6.62$ per btc and i live in italy where electricity is expensive (0.2$ KW/h) and i can sell at 13.7$. Price can drop to 9$ and difficulty rise to 3mln and for an american citizen that pays 0.07$ KW/H it is still profitable to mine(4$ per btc and selling it at 9$) , so there is room for a drop in the price/diff ratio without affecting too much the network speed.

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July 21, 2011, 05:21:34 PM
 #95

If the price / difficulty ratio is so bad, even to say "near the lowest point it has ever been" then there must be people looking to sell their mining equipment.  Who wants to sell me some? I can't pay U much, cuz mining profitability is near an all-time low, but I'll buy  Grin
gnaget
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July 21, 2011, 06:10:52 PM
 #96

I do not agree, the cost for 1 btc for me is 6.62$ per btc and i live in italy where electricity is expensive (0.2$ KW/h) and i can sell at 13.7$. Price can drop to 9$ and difficulty rise to 3mln and for an american citizen that pays 0.07$ KW/H it is still profitable to mine(4$ per btc and selling it at 9$) , so there is room for a drop in the price/diff ratio without affecting too much the network speed.


I'm not saying it is not profitable, merely it is not worth it for the smaller miners.  I'm running at 7 GH/s, and so I consider myself a moderate sized miner, but each of my rigs have gone from a 2 month ROI to an 8 month ROI.  The little guys, running mining software on their desktop, are making all of $2 a day, and they represent a healthy percentage of the number of miners out there.  Considering the heat, noise, electricity, and difficulty moving the money around, that $2 a day isn't really worth it, and I expect many will simply stop running their client.  At least I hope so...

At the current profit margins and an 8 month ROI, I will continue to mine - it is definitely worth it, but my expansion plans have been halted until I see some positive momentum in the market.  Next year, when the reward halves, I have no idea what will happen, but the ratio will instantly half, and a 1.0 will become a .5, at which point it will not be worthwhile to mine until the difficulty drops or the price raises.  Still have over a year to go before I need to worry about that.

I should point out, I'm not suggesting any course of action for any miners, big or small.  I am merely stating my plans based on some pretty elaborate spreadsheets showing my expected return over the next 2 years.  For me, mining is a business, I'll do it as long as there is enough profit, and I'm hoping the profit will remain.
gnaget
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July 21, 2011, 06:12:55 PM
 #97

Also, I made my chart publicly available for the time being.  It updates itself automatically once per day.  I'll keep it public as long as I don't see a massive rise in my cpu usage on my server:

[edit: removed link - making it private again]

Edit: Please don't hotlink the image directly, it'll result in me taking it down.  If you want to display it somewhere, please save the image and host it elsewhere.  You are free to do whatever you want with it, I'm not big on copyrights, just don't eat my server Smiley
bitrick
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July 21, 2011, 10:40:36 PM
 #98

It seems a big factor in the future price is whether miners decide to mine at a loss (sell at market), stop mining, or hold out for more money.

My prediction is that "hold out" will be the dominant choice. Why? Because mining and selling at a loss has no apparent justification; losing money is not desirable and it is not clear that mining at a loss is a sustainable model for the bitcoin project in the long term. "Stop mining" does not help the project and has no potential profit (but is risk free). "Holding out" keeps the rigs running and the community strong and has potential for profit in the future (but has risk). I suspect miners are more likely to support the project and take the risk for future profit, rather than a guaranteed zero profit or guaranteed loss. (Or they turn into buyers - same difference)

On the other hand, if demand drops a cliff, all bets are off. You can hold out all you like, but if nobody is buying, it will not raise the price.

It will be really interesting to see how it plays out. There is enough novelty in this project for dozens of Phd theses.
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July 22, 2011, 05:03:09 PM
 #99

Also, I made my chart publicly available for the time being.  It updates itself automatically once per day.  I'll keep it public as long as I don't see a massive rise in my cpu usage on my server:

[...]

Edit: Please don't hotlink the image directly, it'll result in me taking it down.  If you want to display it somewhere, please save the image and host it elsewhere.  You are free to do whatever you want with it, I'm not big on copyrights, just don't eat my server Smiley

full disclosure: I have been working on similiar graphs for a while now and will release them soon. I had not seen this page before.

instead of the difficulty/price ratio I prefer the mining profit per 100MHash/s as proposed a long time ago by Raolo.

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gnaget
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July 22, 2011, 06:44:24 PM
 #100

full disclosure: I have been working on similiar graphs for a while now and will release them soon. I had not seen this page before.

instead of the difficulty/price ratio I prefer the mining profit per 100MHash/s as proposed a long time ago by Raolo.

It is the same concept, since profit would be defined as price * reward.  The reward part is constant until 2012, so it will not change the graph until 2012.  I do plan to update the formula by then - kinda a low priority since I have a year Smiley

I'm not sure where 100MH/s comes from, and seems arbitrary.  I already divide the difficulty by 100,000 to align it with the price, but 100,000,000 would undo that alignment.  Right now, $15.00 / 1,500,000 difficulty results in a 1/1 ratio, which is very convenient. 
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