Downward pressure caused by mining? (Coindesk's Citi article)

[Delarock]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

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[jonald_fyookball]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

It's a pretty accurate article, but its really nothing new... Downwards pressure has been in effect the whole time.

Bitcoin demand just needs to "hang on" for a few years... As the rewards keep halving, the demand will outpace
the supply... and price will rise.  Hold for at least 5-10 years if you're an investor and don't get rattled if the
price drops in next 1-2 years. 

[BTCmaster3]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

Its just simple supply and demand, miner mines coin which is supply.

[SunBin]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

Only the ASIC producers have the cheapest cost when it comes to mining. For the average miner, there is no profit being a miner.

[itsAj]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

Since miners create 3,600 new BTC per day, they will likely need to sell at least a portion of these because they need to pay for current expenses like electricity. They also need to start to pay themselves back (or their source of capital for their miners) for the cost of the miner so they can ROI.

[painlord2k]

The downward pressure is important, because, currently, there is a 12.5% inflation/year (2.5% more than what would be if the hashing power would stay stable).
This imply in a year there will be a new coin every 7 coin existing, if the hashing power continue to grow at this rate.

The good part is, Chair Yellen is printing new Federal Notes (AKA $ US) a lot faster than this and will continue.
So, the deal in keeping value in bitcoin will become sweeter than the deal of keeping them in USD.

[botany]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

It's a pretty accurate article, but its really nothing new... Downwards pressure has been in effect the whole time.

Bitcoin demand just needs to "hang on" for a few years... As the rewards keep halving, the demand will outpace
the supply... and price will rise.  Hold for at least 5-10 years if you're an investor and don't get rattled if the
price drops in next 1-2 years. 

A lot of people who want to get rich in a few months entered bitcoin when its price was shooting up. They burnt their fingers in the last bubble.

[Delarock]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

[zeroday]

"downward pressure caused by miners" - "stable" price for long period actually means growth and expansion of bitcoin, not stagnation.

[wasserman99]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

This is not equivalent to inflation, it is inflation. When miners find additional blocks with a block reward/subsidy, the total amount of bitcoin in circulation will increase, and this is the exact definition of what inflation is.

[adamstgBit]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

This is not equivalent to inflation, it is inflation. When miners find additional blocks with a block reward/subsidy, the total amount of bitcoin in circulation will increase, and this is the exact definition of what inflation is.

its hyper-inflation

[wasserman99]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

This is not equivalent to inflation, it is inflation. When miners find additional blocks with a block reward/subsidy, the total amount of bitcoin in circulation will increase, and this is the exact definition of what inflation is.

its hyper-inflation

I am not sure that I would go that far. Hyper inflation is generally something in which inflation causes the total money supply to more then double in a year which is not quite the case in bitcoin.

[Delarock]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

This is not equivalent to inflation, it is inflation. When miners find additional blocks with a block reward/subsidy, the total amount of bitcoin in circulation will increase, and this is the exact definition of what inflation is.

its hyper-inflation

I am not sure that I would go that far. Hyper inflation is generally something in which inflation causes the total money supply to more then double in a year which is not quite the case in bitcoin.

That's what I thought. Is this inflation outpacing the overall deflationary design of bitcoin in the short term? Is the current pressure from institutional miners more than the previous pressure from hobbyist miners?

[jonald_fyookball]

That's what I thought. Is this inflation outpacing the overall deflationary design of bitcoin in the short term?

It might be.  But if so, it doesn't really matter.

[Keyara]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

The author of the article doesn't know what he is talking about.

The is an upward pressure on price because the production cost is below the price. So supply is limited, only merchant and trader are selling (and buying), miner can not recoup their capital cost at this price.

[origin12]

I heard some countries like Dubai provide very cheap government subsidized electricity. Miners in these countries could produce bitcoins far cheaper than everyone else. Is there some way to find out in which region the biggest percentage of new bitcoins are mined each day?

[leopard2]

Remember that Bitcoin is designed such that, no matter how cheap electricity or hardware is, the total amount of BTC mined will not increase but always decrease

In 2 years the block reward will halve again

http://bitcoinclock.com/

Price has no other way than up unless BTC is going out of fashion (which does not seem likely right now)

[wasserman99]

(Forgive me if I'm butchering any specific economic terms.)

I'm pretty familiar with the mining game from a non-institutional viewpoint. I used to be a miner. I started with GPU's mining LTC, rolled that into BTC and then got a pair of S1's, which I recently sold.

I really had no need to sell the BTC until the beginning of the summer. I was willing to pay out of pocket for electricity, but when it started getting too hot and I had to run the AC, the cost and conditions were no longer worth it for me. I understand that this scenario may be familiar for many, and I also believe that this was the early hobbyist stage of mining, which we've moved out of into the institutional stage. It is no longer an option to hold mining proceeds when you need to sell to cover the costs of your farm.

What I'm more curious to know about is the magnitude of the selling pressure difference between hobbyist and institutional mining. I feel like it may be more than a supply issue because miners are under considerably more pressure to sell now than they were back when their computers were spitting out coins. My understanding is that, giving an equivalent time frame, the fields of GPU's were still producing the same as the fields of ASIC's are now due to difficulty increases. Were miners producing 3500 coins a day back when it was only GPU's?

Is this equivalent to inflation?

This is not equivalent to inflation, it is inflation. When miners find additional blocks with a block reward/subsidy, the total amount of bitcoin in circulation will increase, and this is the exact definition of what inflation is.

its hyper-inflation

I am not sure that I would go that far. Hyper inflation is generally something in which inflation causes the total money supply to more then double in a year which is not quite the case in bitcoin.

That's what I thought. Is this inflation outpacing the overall deflationary design of bitcoin in the short term? Is the current pressure from institutional miners more than the previous pressure from hobbyist miners?

I would say that the selling pressure from the "corporate" miners is almost certainly more then the "retail" miners that were mining in years past. Regardless the purchasing power of bitcoin has not decreased substantially over the past year (with the exception of when the price crashed when Gox was failing.

[itsAj]

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

I'm interested in knowing more about this, specifically about the downward pressure caused by miners selling their bitcoin. What type of pressure could this be causing? Anything measurable?

The author of the article doesn't know what he is talking about.

The is an upward pressure on price because the production cost is below the price. So supply is limited, only merchant and trader are selling (and buying), miner can not recoup their capital cost at this price.

I don't think this would cause an upward pressure, but rather less of a downward pressure because the miner would not need to sell all of the bitcoin they produced to pay for their current (electricity) expenses.

[painlord2k]

That's what I thought. Is this inflation outpacing the overall deflationary design of bitcoin in the short term? Is the current pressure from institutional miners more than the previous pressure from hobbyist miners?

The projected (weekly) inflation oscillate, over an year, between 10-12.5%, it should be around 10%.
But this is just nearing the next halving of the reward. So more bitcoins now imply less bitcoin mined in the future. It also imply the hashing rate is greater and the network more secure.

Instead of 3600 btc/day are mined around 3960-4320 BTC/day (10-20% more). This imply there are other 360-720 BTC available on the market every day.
If we suppose a stable price of 500$, and a user bases of 2 M people, this imply every user should convert additional 33$ in a year  in Bitcoin to offset the inflation added by increasing hash rate (1% more in absolute terms).
360$ per current user would be needed to offset completely inflation for one year.

This is around 720 M USD (or equivalent) in the next year or around what Ms. Yellen print in a day when she is, allegedly, ending QE II (or was QE III?).

Venture Capitals investing in the sector are investing at least 400 M USD in the next 48 months (just stuff already announced and programmed publicly). More is not announced or is from small entities not making the news.
If the user's base increase as fast as in the previous years we could move from 2 to 6+10 million users before the end of the year. This would imply they just need to convert 72$ per head and hold them) to offset inflation completely.

The past show empirical evidence that every new 1 USD worth added to BTC increase the market cap of 10x (IIRC). In this case, if we suppose new users are enough to offset inflation completely, we could suppose just the VC capitals announced are enough to push the market cap up to the all time-high and any other capital will push the market cap higher.