Why is the value dropping?

[biggus dickus]

Enlarge the time to chart that you will find it is nothing now.

Yes I see it goes up and down but when you look at the big picture over the years it went up once and now is generally going down. There is only one "rise" and "fall" on the  4 year chart.

No, there is more than one rise and fall, but the last rise went so high that the previous ones are almost imperceptible when viewed on a multi year chart. The red arrows on the one below show three rises.



https://www.coindesk.com/price/?bpi=bpi

If you zoom in on each of the smaller rises you can see they were actually quite big. Here's the 2011 rise zoomed in on the coindesk chart.

[ravenjt]

What's different about the recent Nov 2013 bubble is that it has taken so long for the bubble to unwind. The bubble is still deflating 12 months later, whereas before full deflation occurred within 2-5 months.

This is important as it is resulting in changing attitudes. There were always those who lost a load of money, but at least they saw the market improving within a few months, and if the HODLed, then they recouped their losses. But now those who foolishly bought at the peak are still seeing further losses 12 months later, and are wondering whether they should try to save what little value they have left.

I believe this stretching out of the decline period reflects that the market is now more dominated by zombie-like HODLers, who keep their positions, and even buy small amounts more, limiting the inevitable post-bubble price declines to a snail's pace. Meanwhile, the price remains high enough to fund miners production of ever more BTC.

The problem with this, is that for the rest of the world, BTC means slow decline. No one wants to use it for payments, as now they expect to lose value whilst holding BTC. The slow decline is undermining the true value of BTC, which is in its functions as a means of transferring value between people. The slow decline is also wiping out the speculative opportunities.

[Mervyn_Pumpkinhead]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

[Elwar]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

How many existing bitcoins are required to pay for bitcoin mining?

[Krang]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

I've often wondered what would happen if bitcoin dropped so low that it quickly became unprofitable to mine. Would all the miners just pack up and cut their losses?

[Mervyn_Pumpkinhead]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

How many existing bitcoins are required to pay for bitcoin mining?

A good question, but it's better to calculate the cost of sustaining bitcoin mining in dollars.
I don't currently have much time, but I'll try to draw some calculations on how much exactly sustaining it's mining costs. And that should include the point that the owners of mining equipment eventually want to see ROI.
If someone has more time, then I would be clad to see some calculations on how much does sustaining bitcoin mining actually costs.

[Mervyn_Pumpkinhead]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

I've often wondered what would happen if bitcoin dropped so low that it quickly became unprofitable to mine. Would all the miners just pack up and cut their losses?

It has already dropped this low to those who run older ASICs. I think that most miners are accumulating coins and hoping for a better future, while covering losses with their own money. But speculators also know this and they know that miners can't hold on forever. And the longer they have to accumulate their coins, the bigger the avalanche will be.

[inca]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

How many existing bitcoins are required to pay for bitcoin mining?

A good question, but it's better to calculate the cost of sustaining bitcoin mining in dollars.
I don't currently have much time, but I'll try to draw some calculations on how much exactly sustaining it's mining costs. And that should include the point that the owners of mining equipment eventually want to see ROI.
If someone has more time, then I would be clad to see some calculations on how much does sustaining bitcoin mining actually costs.

Perhaps you can show me how the bitcoin exchange price is related to the cost of mining in any way whatsoever?

How much mining supply actually is sold on exchange or OTC?

I would be interested to see your calculations of global mining costs to maintain the network also.

[kokojie]

Only one reason really, PoW mining expense

This. If mining costs more than bitcoins, miners actually take bitcoins out of the system to pay for their electric bills.

So if bitcoin has a market cap of $1 billion and electricity costs are $500 million, miners will actually pull $500 million worth of money out of bitcoin.

Amazing huh?

And if the electricity costs are over $1 billion...the cost of bitcoins will go negative and anyone using bitcoin will actually be paying to use it.
 


Or, more realistically, if miners are selling all of their coins there is a built in maximum inflation built into bitcoin which can easily be eaten up by the influx of new users.

Mining cost is not static though, from what I have observed over the last 4 years, mining cost roughly always trying to approach 10% of the Bitcoin marketcap, that seems to be the equilibrium point. So no, mining cost will not be at 50% of marketcap and it's impossible to be at 100% or more.

[Elwar]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

How many existing bitcoins are required to pay for bitcoin mining?

A good question, but it's better to calculate the cost of sustaining bitcoin mining in dollars.
I don't currently have much time, but I'll try to draw some calculations on how much exactly sustaining it's mining costs. And that should include the point that the owners of mining equipment eventually want to see ROI.
If someone has more time, then I would be clad to see some calculations on how much does sustaining bitcoin mining actually costs.

But your claim was that value is taken from the existing coins.

The current amount paid to miners is 3600 bitcoins or just over a million dollars per day if every miner cashed out all of their bitcoins. Personally, I see mining as a good way for people to "buy" bitcoins without the need to go through an exchange. You pay fiat for electricity and receive bitcoins. I know here in Europe there is a high demand for bitcoins such that people are willing to pay 20% over the bitcoin price to get their euros to bitcoins via localbitcoins.

The inflation rate is fixed. It cannot go over 3600 bitcoins. So even if mining costs $10 trillion per day, the inflation rate cannot go over 3600 bitcoins per day. And with that knowledge, it is already built into the price.

[Fabrizio89]

There are many factors to take in consideration, there's not just a simple answer to your question. We had a couple of years of tremendous growth, some sort of rest was what the market needed. Bitcoin is young and there are few players who can really play this market one way or the other, I deeply hope this phase is an opportunity for redistribution of wealth and that many take advantages of the low prices to enter the market.

[rebuilder]

My take:

There are, roughly speaking, two broad factors influencing the BTC market price.

There's the supply and demand dynamic of inflation (3600 BTC added to the ecosystem daily, currently) and demand from people using BTC to transfer value (buying goods online, remittances, what have you.) You may think of this as a baseline for what a bitcoin "should" (huge scare quotes here) cost at any given time.

Then there's the dynamic of speculation, where traders look to capitalize on their ability to forecast the price movements. Mostly, people are not very good at this, but many act as if they were. There are long-term holders who, believing in the utility of Bitcoin, hoard their coins in anticipation of future profits as adoption grows. Then there are traders, who bet on the price going one way or the other and buy or sell accordingly. Also, although you might call these a subset of traders, there are people who buy (or short sell) well into an established trend, simply believing that since the price has gone up (or down) for a time it will surely keep doing the same. They tend to amplify large price spikes and, I expect, suffer bad losses in the process.

At any given time, the relation of these macro-scale factors in determining the price is unknown. The latter, speculative use, will tend to cause the price to fluctuate heavily around any larger trend that might, somehow absent speculation, be hypothetically determined.

TL;DR: No-one knows what a bitcoin should cost at any given time. People invest based on previous price action more than anything else. This creates feedback loops that lead to unsustainable spikes and crashes, but no-one can tell you when a fair price has been reached. Caveat emptor.

[Mervyn_Pumpkinhead]

But your claim was that value is taken from the existing coins.

The current amount paid to miners is 3600 bitcoins or just over a million dollars per day if every miner cashed out all of their bitcoins. Personally, I see mining as a good way for people to "buy" bitcoins without the need to go through an exchange. You pay fiat for electricity and receive bitcoins. I know here in Europe there is a high demand for bitcoins such that people are willing to pay 20% over the bitcoin price to get their euros to bitcoins via localbitcoins.

The inflation rate is fixed. It cannot go over 3600 bitcoins. So even if mining costs $10 trillion per day, the inflation rate cannot go over 3600 bitcoins per day. And with that knowledge, it is already built into the price.

Yes, that's exactly right. Miners need to be paid and they need to be paid in dollars. Miners are expecting ROI on their initial purchase of equipment + the cost of electricity. Some of them are wealthy enough to pay the loss that they are getting, but considering the how idiotic it actually is to try to make money with bitcoin mining, then I dare to doubt that most of them aren't exactly wealthy. This in turn means that they have to sell their coins to get anything out of their investment. And those who can hold up because they can cover their losses from personal wealth, can also only hold up for some time before they dump and move on to better prospects.

Mining has almost always been the an very unprofitable way to acquire coins. People that used their money to buy coins directly, not by buying mining equipment, got 2x+ more coins then the miners will ever receive. Bitcoin mining only made sense before asics and before the market cap. reached over a 100 million. When bitcoin was small enough and not considered to be have much utility value, then these things didn't matter. But when the network got bigger, then the veil was lifted that bitcoin mining is a game for fools. And the bigger the network would get, the more transparent it will become on how idiotic pure PoW mining exactly is.
A system that eats increasing amount of resources without offering anything in return. The bitcoin network doesn't improve in any way with the increased amount of hashrate. It's like wasting money to pay someone to run around in circles. PoW is already idologically flawed because it rewards useless work. Financial development is about rooting out the useless leeches, not to reward them.

[smalltimer]

Bitcoin mining is just too expensive to sustain this price.

If not enough new money will flow in, then value will be taken from the existing coins to feed the abomination that called is bitcoin mining
That's one of the reasons why there can't ever be any stability with bitcoin.

3600 new coins a day, no matter what.

Other question: Is mining maybe too profitable?

Less inflation (faster rewarddecrease) would have resulted in more stable and higher prices by now. If miners had less coins to sell they would get higher prices for it. With centralisation of mining most coins are dumped. From my standpoint bitcoin is not ideal in that regard. It is more volatile than it would have to be.

[mmortal03]

What's different about the recent Nov 2013 bubble is that it has taken so long for the bubble to unwind. The bubble is still deflating 12 months later, whereas before full deflation occurred within 2-5 months.

This is important as it is resulting in changing attitudes. There were always those who lost a load of money, but at least they saw the market improving within a few months, and if the HODLed, then they recouped their losses. But now those who foolishly bought at the peak are still seeing further losses 12 months later, and are wondering whether they should try to save what little value they have left.

I believe this stretching out of the decline period reflects that the market is now more dominated by zombie-like HODLers, who keep their positions, and even buy small amounts more, limiting the inevitable post-bubble price declines to a snail's pace. Meanwhile, the price remains high enough to fund miners production of ever more BTC.

Don't forget that if you bought in the first week of June 2011, you wouldn't have been back in the black until the end of February 2013. That was much longer than 12 months. It's true, however, that it only took 5 months to find the local bottom in 2011.

The problem with this, is that for the rest of the world, BTC means slow decline. No one wants to use it for payments, as now they expect to lose value whilst holding BTC. The slow decline is undermining the true value of BTC, which is in its functions as a means of transferring value between people. The slow decline is also wiping out the speculative opportunities.

It's funny that this made me think of the dollar. Of course, the dollar's slow decline is much slower.

[Elwar]

The bitcoin network doesn't improve in any way with the increased amount of hashrate. It's like wasting money to pay someone to run around in circles. PoW is already idologically flawed because it rewards useless work. Financial development is about rooting out the useless leeches, not to reward them.

It does improve the higher the hashrate. Bitcoin becomes even more secure the higher the hashrate. Security is a huge benefit that is desired in a currency.

Again...there is a maximum amount that PoW takes out of the system. 3600 bitcoins per day. Even if PoW costs $10 trillion per day, miners will not be taking more than 3600 bitcoins per day. This number is a known increase in inflation known since the beginning of Bitcoin.

We all know that the maximum will be 21 million bitcoins and that currently there are only around 13 million. We all know that we will get 8 million more bitcoins before the maximum is reached.

[Mervyn_Pumpkinhead]

The bitcoin network doesn't improve in any way with the increased amount of hashrate. It's like wasting money to pay someone to run around in circles. PoW is already idologically flawed because it rewards useless work. Financial development is about rooting out the useless leeches, not to reward them.

It does improve the higher the hashrate. Bitcoin becomes even more secure the higher the hashrate. Security is a huge benefit that is desired in a currency.

Again...there is a maximum amount that PoW takes out of the system. 3600 bitcoins per day. Even if PoW costs $10 trillion per day, miners will not be taking more than 3600 bitcoins per day. This number is a known increase in inflation known since the beginning of Bitcoin.

We all know that the maximum will be 21 million bitcoins and that currently there are only around 13 million. We all know that we will get 8 million more bitcoins before the maximum is reached.

The increase in hashrate doesn't improve the security, because the network is pooled together in single points. You only have to compromise couple of pools, to get 51% and attack the network. It doesn't matter how much hashrate is backing those pools. All the security is currently in the hands of pools.
Security and hashrate were tied together in the time of solo mining, that was the initial idea of bitcoin. Pools ruined this initial idea.

The amount of mined bitcoins is fixed, but the dollar value of bitcoin isn't fixed. Miners want at least the same amount of dollars back, that they have wasted with mining. The more expensive mining gets, the more dollars are needed to sustain the network. If not enough new money will flow in, then mining will start to eat the dollar value that has been put into BTC in the past. And this will cause the price to drop.
I hope that this time I made myself clear enough.

[Elwar]

The more expensive mining gets, the more dollars are needed to sustain the network. If not enough new money will flow in, then mining will start to eat the dollar value that has been put into BTC in the past. And this will cause the price to drop.
I hope that this time I made myself clear enough.

This is the part where we have a disconnect. Like I said, mining could cost $10 trillion per day but the miners cannot take more than the value of 3600 bitcoins per day (currently just over $1 million). This is the limit to the cost of mining on the price.

We already know that new money needs to flow in to account for the 3600 bitcoins per day. That is factored into the price.

[Mervyn_Pumpkinhead]

The more expensive mining gets, the more dollars are needed to sustain the network. If not enough new money will flow in, then mining will start to eat the dollar value that has been put into BTC in the past. And this will cause the price to drop.
I hope that this time I made myself clear enough.

This is the part where we have a disconnect. Like I said, mining could cost $10 trillion per day but the miners cannot take more than the value of 3600 bitcoins per day (currently just over $1 million). This is the limit to the cost of mining on the price.

We already know that new money needs to flow in to account for the 3600 bitcoins per day. That is factored into the price.

If mining costs $10 trillion per day, then bitcoin would have to cost $10 trillion / 3600 = 312 500 000$, and to sustain this price, bitcoin would need to increase $10 trillion dollars every day. If it won't get this amount, then it will take it from the present market cap.

Miners will take their wasted dollars back one way or another, if not enough new money enters, then they will eventually just dump and settle with what they can get. That is the reason why overheating of PoW mining can eventually destroy the entire market. When the upkeep of the network becomes too expensive for the market to handle, then it can destroy any chances of profitable speculative play.

[Elwar]

If mining costs $10 trillion per day, then bitcoin would have to cost $10 trillion / 3600 = 312 500 000$, and to sustain this price, bitcoin would need to increase $10 trillion dollars every day. If it won't get this amount, then it will take it from the present market cap.

This is completely wrong.

Perhaps this is why people think PoW is bad.

If every miner takes the 3600 bitcoins and cashes them out each day, it does not matter if the price is $1/BTC or $300,00,000/BTC. They cannot take out more than 3600 bitcoins.

The only way this is possible is that if you assume that the miners have a buttload of bitcoins that they have been hoarding that they will cash out. Which..once they cash out...would lead right back to only 3600 bitcoins per day.