The "miners are dumping thousands of coins every day" argument

[Ibian]

Let's entertain this argument for a moment.

1) You buy mining gear with fiat that is not needed elsewhere. As this fiat was available there is no need to dump coins in a bear market. Wait for next ATH. Net market pressure: Up.

2) You take a loan, mine and sell regularly to pay the loan back. You do not sell 100% of them regardless of price because you did your calculations beforehand. The coins you do not sell are now unavailable to the rest of the market, increasing scarcity and therefore price. Net market pressure: Up.

3) You are bad at math and mine at a loss. You either turn off your miner or bleed money until you end up in the gutter. Net market pressure: Down, but temporarily.

Not being a miner myself, it's possible I missed something. But so far, it looks like sustainable mining is good for the price.

I'm actually looking to be proven wrong here. But with logic and numbers, not trolling. Thanks in advance.

[spiderbrain]

Sounds like a good analysis to me, but unfortunately there are a lot in group 3. These will go out of business soon, and the horror stories will stop people making bad fiat investments in mining rigs, and take the pressure off the price. On the plus side it's getting easier for people to enter the market now with the relatively low prices.

[Raize]

2) You take a loan, mine and sell regularly to pay the loan back. You do not sell 100% of them regardless of price because you did your calculations beforehand. The coins you do not sell are now unavailable to the rest of the market, increasing scarcity and therefore price. Net market pressure: Up.

Imagine you and your friends are all miners who took out $50k loans to buy nice mining gear in the Fall of last year. You're the one who mines and only sells to cover his fiat loan. You interact with these friends and colleagues every day, and they all talk about how they've been selling everything as they mine it.

Your first month of mining was in December of 2013 and after selling to cover fiat expenses, you made a profit of 50 BTC.

Your second month of mining was in January of 2014 and you made 40 BTC.

Your third month of mining 30 BTC.

Your fourth month 20 BTC.

You go to a miner's consortium in early April 2014, and your friends talk about how the price has fallen so much, they were glad they were selling. Turns out they made the same kind of profits but sold right away, here's how they worked out...

December 2013: 50 BTC sold at ~$1000 each for $50k
January 2014: 40 BTC sold at $800 each for $32k
February 2014: 30 BTC sold at $600 each for $18k
March 2014: 20 BTC sold at $500 each for $10k
Total in Fiat: $110k

So time comes around to where they ask you how you've been doing. You say, fine, things have been going great, but you're thinking it's time to shut down here in a few months, you're not sure of the future profitability. Your friends turn to you and say they actually have plans to close out their loans and liquidate their hardware next week and just pocket their profits, too. They owe about the same amount, $50k for the mining equipment, and they ask you if you'll be closing out your loan, too.

You made a handsome 140 BTC, but you realize that in order to finish off the loan, you'll need to cash out of nearly all of it at ~$400 ($56k), and you'll pocket a whopping $6k in profits. You'll get a lot of "oh man that's too bad" from your friends, but at the end of the day, they'll be the ones walking away with the bigger profits.

Yes, you could cover loan costs in fiat from a day job, but you're still realizing that the guys who sold made more money. Now, imagine this same Miner's consortium among you and your friends happened in January instead. Would you still have not sold immediately in February and March?

TL;DR: Pressure comes to sell eventually for miners, especially if they have loans. The market can remain irrational longer than you can remain solvent.

[IMZ]

Thanks for opening this thread!!

'Wait for next ATH.' What if you aren't a seasoned crypto-geek? What if you aren't sure there will ever be an ATH? If your enterprise is returning ten percent today on the coin mined, you sell it in this 'bear market,' and buy more equipment to mine with.

The fly in the ointment here, Ibian, is perhaps the notion that the 'fiat is not needed elsewhere.' The sorts of people who set up profit-oriented enterprises want profit on the money invested, and very often they want it immediately.

Mark (IndiaMikeZulu), Australia

[nonbody]

if you dont pay for power or your rig is low power, then it throws half your theory out

[lyth0s]

As large miners have to pay electricity bills and the price of bitcoin keeps downtrending, they continually have to sell larger percentages of their mined coins to cover their operational costs (warehouse, electricity, maintenance etc) causing a downward pressure.

[toinew]

Op, your logic is invalid. The mining industry is not holding bitcoin. Mining and Holding are two different things.
that's basic business practice, but you seem to be lacking knowledge about it.

So yes, miners are dumping thousands of coins every day
the fact that you like it or not, in the other hand, is irrelevant  

[piramida]

that's basic business practice, but you seem to be lacking knowledge about it.

and you seem to possess unlimited knowledge about it drawn from a pool of your imagination.

[edwardspitz]

You sell your BTC on the market until it is no longer profitable. You do not want to sell at a loss, so you accumulate for a while. You might get together with your mining buddies and it turns out they are in a similar situation. You agree to the short the market and dump like there is no tomorrow. You take your shorting profits and buy even faster mining gear while congratulating yourself that you are now one step ahead of the competition (the small mining operations).

[BTCfan1]

On the plus side it's getting easier for people to enter the market now with the relatively low prices.

Great point.  It's nice to see that bitcoin mining tech is given a chance to catch up, I've been thinking about getting in the game for a while now...

[seriouscoin]

when would anyone of you spend abit of time and learn economy?

Because thread like this shows many of you are just dumb as fck.

Here is a simple fact for you:

All the money ,invested into mining, in fact goes into bitcoin eco system

The selling pressure that you see means the cost of producing miner has been higher market price of btc and thus profits. The selling will stop when it reach marginal profit  (equilibrium). Even manufactures still lose money if they make products that cant sell.

Simple as that.

If you're in semiconductors industry, you would see at the current price level, the manufactures arent gonna pumping out miners any more. Its profit is slim to none now.

 

[IMZ]

'The selling pressure that you see means the cost of producing miner has been higher market price of btc and thus profits.'

On behalf of all the dumb-as-fcks here, seriouscoin, please allow me to thank you for your rude and poorly-worded-and-punctuated post. In future, we shall all cower mutely in the crypto shadows, lest we offend you.

Mark Blair, Unicup, Western Australia

[Argwai96]

I think that it's very difficult to speculate on this sort of thing. I believe that there are mining outfits that have access to cheap, up-to-date equipment and electricity. There is no comparing those large-scale miners to retail miners. I think such operations are likely able to sell at this level with significant profit.

[An amorous cow-herder]

Let's entertain this argument for a moment.

Pretty sure the number is the mid to high hundereds of coins, and not in close to total production.

1) You buy mining gear with fiat that is not needed elsewhere. As this fiat was available there is no need to dump coins in a bear market. Wait for next ATH. Net market pressure: Up.

That would be hobby mining.
Hobby miners can obviously obviously do as they please. They could sell or hodl. The distribution is obviously up for debate. Assuming hobby miners account for a total production of 1000BTC a day and 50% sell that would mean 500BTC entering market a day (fiddle with those number as you want).
Net effect: slight downwards preasure on market.
Even assuming no one sells coins the market pressure is simply neutral (supply and demand on exchanges isnt changed).

2) You take a loan, mine and sell regularly to pay the loan back. You do not sell 100% of them regardless of price because you did your calculations beforehand. The coins you do not sell are now unavailable to the rest of the market, increasing scarcity and therefore price. Net market pressure: Up.

b.) Farms have expenses and can only burn through so much fiat before they have to sell at least some. I expect them to sell mainly off market. E.g. KNC advocates the concept of "clean" coins, that is freshly minted untainted coins, and says those should be worth more. Since there is no way to sell those at a surchage at exchanges they will sell offmarket.
Net effect: Coins sold off market dont directly affect price on market, but reduce demand on exchanges (since buyers did not need to visit them).

3) You are bad at math and mine at a loss. You either turn off your miner or bleed money until you end up in the gutter. Net market pressure: Down, but temporarily.

That would be those "gold rush noobs". Funnily enough there actually seem to be quite a lot of those. Since a lot of miners sell used mining gear on ebay etc., at prices which look like a bargain compared to original price but with no chance ever even getting close to a net ROI. Since thats mostly used equipment the effect on BTC supply is fairly low. Possibly there is a psychological effect though, being basicly scammed (being sold a "gold shovel" that has no reasonable chance of getting the investment back may inspire that feeling) and never considering using BTC again (and possibly even warning others).

Not being a miner myself, it's possible I missed something. But so far, it looks like sustainable mining is good for the price.

Had a 2012 BFL preordered rig myself. Back then, even at ~$10 per coin, it would have been a fantastic investment if it had been delivered in a timely fashion.
I think the main fallacy you make is that you consider freshly mined coins that arent sold on market as upwards pressure. Its simply preasure neutral, since coins dont enter market. It could actually even be considered donward pressure, if fiat was spent to make the purchase, since it could have instead been used to actually buy coins on market.

I'm actually looking to be proven wrong here. But with logic and numbers, not trolling. Thanks in advance.

NP. Basicly i agree with that "miners selling thousands of coins" (at least on exhanges) is probably bullshit. On the other hand i dont know if that is actually good news, since it raises the question of what happens if miners actually have to sell thousands of coins. Assuming e.g. that in case 2) a farm will only sell enough of market to cover running costs the amount sold will naturaly increase as price goes down, while at the same time expenses to gain the coins go up (hashing rates increases, either invest more in equipment have a reduced share).

[Ibian]

2) You take a loan, mine and sell regularly to pay the loan back. You do not sell 100% of them regardless of price because you did your calculations beforehand. The coins you do not sell are now unavailable to the rest of the market, increasing scarcity and therefore price. Net market pressure: Up.

Imagine you and your friends are all miners who took out $50k loans to buy nice mining gear in the Fall of last year. You're the one who mines and only sells to cover his fiat loan. You interact with these friends and colleagues every day, and they all talk about how they've been selling everything as they mine it.

Your first month of mining was in December of 2013 and after selling to cover fiat expenses, you made a profit of 50 BTC.

Your second month of mining was in January of 2014 and you made 40 BTC.

Your third month of mining 30 BTC.

Your fourth month 20 BTC.

You go to a miner's consortium in early April 2014, and your friends talk about how the price has fallen so much, they were glad they were selling. Turns out they made the same kind of profits but sold right away, here's how they worked out...

December 2013: 50 BTC sold at ~$1000 each for $50k
January 2014: 40 BTC sold at $800 each for $32k
February 2014: 30 BTC sold at $600 each for $18k
March 2014: 20 BTC sold at $500 each for $10k
Total in Fiat: $110k

So time comes around to where they ask you how you've been doing. You say, fine, things have been going great, but you're thinking it's time to shut down here in a few months, you're not sure of the future profitability. Your friends turn to you and say they actually have plans to close out their loans and liquidate their hardware next week and just pocket their profits, too. They owe about the same amount, $50k for the mining equipment, and they ask you if you'll be closing out your loan, too.

You made a handsome 140 BTC, but you realize that in order to finish off the loan, you'll need to cash out of nearly all of it at ~$400 ($56k), and you'll pocket a whopping $6k in profits. You'll get a lot of "oh man that's too bad" from your friends, but at the end of the day, they'll be the ones walking away with the bigger profits.

Yes, you could cover loan costs in fiat from a day job, but you're still realizing that the guys who sold made more money. Now, imagine this same Miner's consortium among you and your friends happened in January instead. Would you still have not sold immediately in February and March?

TL;DR: Pressure comes to sell eventually for miners, especially if they have loans. The market can remain irrational longer than you can remain solvent.

Sure, but then again the story would have been flipped if we had started at a low point and gone up from there. The market is a fickle mistress, but as long as mining is actually profitable it's still the equivalent of buying under market value. One of the things that needs to be taken into consideration before actually ordering the rigs.

[An amorous cow-herder]

Sure, but then again the story would have been flipped if we had started at a low point and gone up from there. The market is a fickle mistress, but as long as mining is actually profitable it's still the equivalent of buying under market value. One of the things that needs to be taken into consideration before actually ordering the rigs.

Sure, and there were times when mining was insanely profitable. Lucky are the people who had an ASIC in early 2013.
And while mining investments obviously follow market price (if its worth building someone will build a "money printing machine" after all), there is a large lag. Chips have to be designed, wafers made, machines built and tested. Equipment that was planed during last years spike has only hit the supply chain very recently (cough, BFL Monarch).
What would have been very profitable during the last spike at those difficulty levels may be a pretty bad deal by the time it arrives.
And thats why you cant just "order a rig". As a customer you either pre-order (and cross your fingers) or hope the landscape doesnt change too much by the time your gear goes active (in case of a farm).

[bathrobehero]

You sell your BTC on the market until it is no longer profitable. You do not want to sell at a loss, so you accumulate for a while.

Generally, yes but when the accessibility of asics are on a level of plug and play and people only required to have money to have their equipment (be it physical or virtual) the majority of them might not know better and just dump as they go. Same could go for bigger scale mining operations as well. Maybe too many of those people jumped in half assed a few months ago and now grasping for air. And I guess we also can't connect the price and the difficulty because with better and better asics it's technically cheaper to maintain the same difficulty.

If it is truly about the miners dumping more than before, my uneducated guess is that we're looking at a long period of downtrend - if nothing major would affect the market one way or the other, but there's something always going on.

[redsn0w]

The "miners are dumping thousands of coins every day"

This is not a real problem , they have to pay the electricity cost , so why not sell thei mined coin every day ? Do you want to pay their electricity cost  ?

[johnyj]

Now mining are much more centralized to a few mining farms instead of millions of users at home. While those users can easily pay for the cost and hold the coin, the mining farms have to pay for large amount of electricity and cooling cost (and even loan interest) by selling coins, so I guess the sell pressure will continuously rise until many of those farms are forced to shutdown

[adamstgBit]

The "miners are dumping thousands of coins every day"

This is not a real problem , they have to pay the electricity cost , so why not sell thei mined coin every day ? Do you want to pay their electricity cost   ?

maybe they want to pay for bitcoins using electricity?

 pay for bitcoins using electricity OR  pay for electricity using bitcoins

one of lifes gr8 mysteries