Effect of negative difficulty change on BTC price

[Delarock]

Looking at the difficulty estimate from https://bitcoinwisdom.com/bitcoin/difficulty at the time of this post, there's a possibility that there will be a negative difficulty change. Small one, and there are still ~6.4 days to go, but what type of impact would this have on BTC prices?

Estimated Next Difficulty:   39,581,348,249 (-1.78%)
Adjust time:   After 905 Blocks, About 6.4 days

Price at Bitfinex = 368.5 USD

Any guesses?

[ElectricMucus]

No impact per se, as just a single adjustment would have, but I believe there is a close relation to the hunter-prey equations.

[bitebits]

Nice graph EM!

[yayayo]

No impact per se, as just a single adjustment would have, but I believe there is a close relation to the hunter-prey equations.

Great reference!

However I'm not sure if this relationship does really represent the complete scenario, because there are more than two variables who interact:

1. the mining difficulty
2. the miners
3. the BTC price
4. the market participants (buyers or sellers)

ya.ya.yo!

[johnyj]

Unlike 2011, we might never see a period of continuous difficulty drop, now this trend is too big to stop and there are too much reserve hash power from retired 1st and 2nd generation ASIC miners, a slightest drop in difficulty will re-activate those miners thus immediately push back the difficulty to where it was

[BentleyBirch]

it should be more difficult, more expensive. why the price is not rasing 

[Nagle]

Looking at the difficulty estimate from https://bitcoinwisdom.com/bitcoin/difficulty at the time of this post, there's a possibility that there will be a negative difficulty change. Small one, and there are still ~6.4 days to go, but what type of impact would this have on BTC prices?

Estimated Next Difficulty:   39,581,348,249 (-1.78%)
Adjust time:   After 905 Blocks, About 6.4 days

Price at Bitfinex = 368.5 USD

Any guesses?

Difficulty has little observed effect on price. Difficulty has gone to the moon while the price went down slightly.

Price affects hash rate. Miners who are losing money drop out.

[dinofelis]

I think you guys have it backwards.  The cause is the price, the effect is the difficulty.
Difficulty has almost no influence on price, because the supply of coins is independent of difficulty.  
The price is the incentive of mining, and hence, of difficulty.  As long as the *cost* of difficulty is below the price,
there is an incentive to mine more, which will result in higher difficulty.
When the cost of difficulty is higher than the price, mining is not profitable any more.
A miner can choose to continue and go broke, or stop the losses.  Difficulty will hence decrease until
mining becomes profitable again.
The cost of difficulty as a function of difficulty is given by technological advances.
But I don't see at all how difficulty can have any influence on price.
Difficulty should follow price (with some lag), corrected for technological advances.

[medUSA]

Those who have active miners will continue to mine regardless of difficulty, and drops in difficulty for 1 or 2 periods are not going to encourage more people to mine. Prices are more dependent on demand and news.

[Delarock]

I think you guys have it backwards.  The cause is the price, the effect is the difficulty.
Difficulty has almost no influence on price, because the supply of coins is independent of difficulty.  
The price is the incentive of mining, and hence, of difficulty.  As long as the *cost* of difficulty is below the price,
there is an incentive to mine more, which will result in higher difficulty.
When the cost of difficulty is higher than the price, mining is not profitable any more.
A miner can choose to continue and go broke, or stop the losses.  Difficulty will hence decrease until
mining becomes profitable again.
The cost of difficulty as a function of difficulty is given by technological advances.
But I don't see at all how difficulty can have any influence on price.
Difficulty should follow price (with some lag), corrected for technological advances.

I don't agree. The only circumstance where difficulty would have no influence on price is one where someone could pay for the expense of mining with bitcoin. This is most likely not the case, and miners must sell the btc they mine to pay for things like electricity, which would reflect the downward pressure on BTC price. However, with a decrease in difficulty, miners are effectively producing more at the same expense, which may alleviate some of that selling pressure. How much, I'm not sure.

[dinofelis]

I don't agree. The only circumstance where difficulty would have no influence on price is one where someone could pay for the expense of mining with bitcoin. This is most likely not the case, and miners must sell the btc they mine to pay for things like electricity, which would reflect the downward pressure on BTC price. However, with a decrease in difficulty, miners are effectively producing more at the same expense, which may alleviate some of that selling pressure. How much, I'm not sure.

Miners don't produce more.  The production of coins is independent of difficulty.  It will always be 3600 coins a day (until 2017 or so).  Satoshi produced 7200 coins a day with his PC (before the last halving).

What you are saying is that miners, at high difficulty, will have a different saving/spending attitude for bitcoins (that is, they will only convert what they need to cover their costs) than when the difficulty is lower.  In as much as miners are hodling, that may play somewhat, yes.  

In as much as miners systematically convert into fiat, and take their profit in fiat, there is no effect either.

[Delarock]

If the total network hashrate is 277 Petahashes and stays constant, won't they produce 3600 coins faster at a difficulty of 39 bln than they would at 40 bln?

[raid_n]

If the total network hashrate is 277 Petahashes and stays constant, won't they produce 3600 coins faster at a difficulty of 39 bln than they would at 40 bln?

The difficulty re-targets after 2016 blocks.
Simply put if the hashrate is higher than anticipated more blocks are found in a shorter time so difficulty increases to compensate for that.
If the hashrate drops it takes longer for the 2016 blocks to be found and difficulty decreases after the next re-target to compensate.

Difficulty adjustment is slow so it can lag behind hashrate changes.

[edit] To clarify. Think in terms of the time it takes to find blocks and not the amount of bitcoins found.
If your hashrate increases you will find blocks faster than anticipated so the 2016 blocks until the re-target are found ahead of schedule.
The protocol will then increase the difficulty so if the hashrate does not increase again the timing should be roughly on target

[edit2] to consistently create blocks faster than anticipated the hashrate has to keep increasing.

[gog1]

Looking at the difficulty estimate from https://bitcoinwisdom.com/bitcoin/difficulty at the time of this post, there's a possibility that there will be a negative difficulty change. Small one, and there are still ~6.4 days to go, but what type of impact would this have on BTC prices?

Estimated Next Difficulty:   39,581,348,249 (-1.78%)
Adjust time:   After 905 Blocks, About 6.4 days

Price at Bitfinex = 368.5 USD

Any guesses?

finally happening - difficulty going down!  I see minimal impact.  I seems support at low 300's is incredibly strong - still remember the famous 30K ask wall at stamp got gobbled up.  Without the auction, I say prices is stabilizing.  But the auction may set a new ceiling to the price - which maybe lower than where it's trading.

[1Referee]

Looking at the difficulty estimate from https://bitcoinwisdom.com/bitcoin/difficulty at the time of this post, there's a possibility that there will be a negative difficulty change. Small one, and there are still ~6.4 days to go, but what type of impact would this have on BTC prices?

Estimated Next Difficulty:   39,581,348,249 (-1.78%)
Adjust time:   After 905 Blocks, About 6.4 days

Price at Bitfinex = 368.5 USD

Any guesses?

finally happening - difficulty going down!  I see minimal impact.  I seems support at low 300's is incredibly strong - still remember the famous 30K ask wall at stamp got gobbled up.  Without the auction, I say prices is stabilizing.  But the auction may set a new ceiling to the price - which maybe lower than where it's trading.

People can't enjoy a lower difficulty for more than two weeks as more miners will just put their machines back to work.

But it's a welcome drop, for once people don't see their rewards drop 

[fewcoins]

People are not willing to pay a premium for bitcoin & as the demand falls the price will only continue to fall... Miners minting bitcoin is just jet fuel on the fire 

[cr1776]

I don't agree. The only circumstance where difficulty would have no influence on price is one where someone could pay for the expense of mining with bitcoin. This is most likely not the case, and miners must sell the btc they mine to pay for things like electricity, which would reflect the downward pressure on BTC price. However, with a decrease in difficulty, miners are effectively producing more at the same expense, which may alleviate some of that selling pressure. How much, I'm not sure.

Miners don't produce more.  The production of coins is independent of difficulty.  It will always be 3600 coins a day (until 2017 or so).  Satoshi produced 7200 coins a day with his PC (before the last halving).

What you are saying is that miners, at high difficulty, will have a different saving/spending attitude for bitcoins (that is, they will only convert what they need to cover their costs) than when the difficulty is lower.  In as much as miners are hodling, that may play somewhat, yes.  

In as much as miners systematically convert into fiat, and take their profit in fiat, there is no effect either.

He said miners will mine more at the same expense, not just "more."  That is true if difficulty were to drop.  Individual miners will use the same electricity to produce more coins for the same cost in power. 

[dinofelis]

He said miners will mine more at the same expense, not just "more."  That is true if difficulty were to drop.  Individual miners will use the same electricity to produce more coins for the same cost in power. 

Miners will not "mine more at the same expense".  They will mine the same thing at less expense.
Individual miners cannot "produce more coins for the same cost of power" if not other miners "produce less coins for much less power".

Because the total number of coins mined must be the same.
If some use "the same amount of power" and hence "mine more", then that means that other miners mine less, and consume vastly less power (maybe stop mining all together).

Globally speaking, the miners mine the same amount of coins, and use less electricity.  The do not mine more coins with the same consumption.  Some do, and others mine less. 

That means that miners make more profits (or lose less money, depending where they come from).

The point is that it could be that those increased profits go into hodling coins.  That's the ONLY way in which difficulty can have an influence on the price: by increasing the demand for holding coins (by the miners themselves, because they want to allocate their profit in coins).

[tss]

People are not willing to pay a premium for bitcoin & as the demand falls the price will only continue to fall... Miners minting bitcoin is just jet fuel on the fire 

this makes no sense.  how are miners jet fuel on the fire.  they have always been there producing the same amount of coins regardless of price.

[fewcoins]

People are not willing to pay a premium for bitcoin & as the demand falls the price will only continue to fall... Miners minting bitcoin is just jet fuel on the fire 

this makes no sense.  how are miners jet fuel on the fire.  they have always been there producing the same amount of coins regardless of price.

Ummm because of how a marketplace works??? I understand they have always been producing the same amount the point is LESS PEOPLE ARE WILLING TO BUY BITCOIN & facts are more money is being changed into USD than ever before from BTC. People were willing to pay over a thousand dollars for one coin before! Now you can't find people willing to pay 400 because the miners are racing each other to sell you their coins first and not their competitors.

Bitcoin price is being decreased so it can become more mainstream! Don't fight the cheap coins coming soon!