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Author Topic: Bitcoin Difficulty Suggests Rally (Buttercoin Weekly)  (Read 1490 times)
kzcoin
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December 01, 2014, 07:12:53 PM
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Hi, I’m Kevin Zhou, Economist at Buttercoin (sign up here) a Silicon Valley / Wall Street backed Bitcoin Marketplace.  Every week we take a look at what’s happening in Bitcoin and share it, here’s the latest.

Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem.  This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.

This week markets traded between $360/BTC and $395/BTC.  Trading volumes have been moderate and volatility has been relatively low.

News this week:

Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%.  Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.

The previously steep climb in mining difficulty over the past 22 months has started to flatten out.  The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013).  Moreover, three of the last four difficulty adjustments have been below +3%.  Compare this to last October where we saw difficulty increases of over 25%-40% each time.  This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners.  It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin.  It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.

This also affects the bitcoin markets.  Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down.  Compare this to October of last year when blocks were generated at close to 7 minutes per block.  That means now the network generates about 62 fewer blocks per day than last October.  This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.

In addition to directly less selling pressure, there are circular effects which are bullish on price.  For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses.  Miners are more likely to hoard when they believe other miners are hoarding.  In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.

It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.  This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years.  In light of all this, I am strongly bullish.

Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin

Hope you enjoyed this weeks Bitcoin Recap. If you did please up-vote / like / share Cheesy.  And if you’re a bitcoin trader, come visit us at Buttercoin for free Bitcoin trading.
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December 06, 2014, 12:50:37 AM
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You're strongly bullish; but market players didn't feel the same thing as we saw last 2 days. Everybody was waiting for the auction results and now it's over. What is your post-auction expectations Kevin Zhou?
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December 06, 2014, 03:38:38 AM
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Hi Kevin, nice roundup. Look forward to another one similar like this next week. Actually my outlook wasn't as positive as yours taking into consideration that the auction that will introduce excessive supply to the market. But anyway, seeing the price still maintaining stable within the $380 range may actually point to higher increase. I hope that is the case. Just what you have to say.

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December 06, 2014, 03:45:26 AM
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Hi, I’m Kevin Zhou, Economist at Buttercoin (sign up here) a Silicon Valley / Wall Street backed Bitcoin Marketplace.  Every week we take a look at what’s happening in Bitcoin and share it, here’s the latest.

Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem.  This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.

This week markets traded between $360/BTC and $395/BTC.  Trading volumes have been moderate and volatility has been relatively low.

News this week:

Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%.  Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.

The previously steep climb in mining difficulty over the past 22 months has started to flatten out.  The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013).  Moreover, three of the last four difficulty adjustments have been below +3%.  Compare this to last October where we saw difficulty increases of over 25%-40% each time.  This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners.  It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin.  It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.

This also affects the bitcoin markets.  Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down.  Compare this to October of last year when blocks were generated at close to 7 minutes per block.  That means now the network generates about 62 fewer blocks per day than last October.  This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.

In addition to directly less selling pressure, there are circular effects which are bullish on price.  For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses.  Miners are more likely to hoard when they believe other miners are hoarding.  In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.

It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.  This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years.  In light of all this, I am strongly bullish.

Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin

Hope you enjoyed this weeks Bitcoin Recap. If you did please up-vote / like / share Cheesy.  And if you’re a bitcoin trader, come visit us at Buttercoin for free Bitcoin trading.

First question: Buttercoin, why you no like CAD bank accounts?!?

Forgive my petulance and oft-times, I fear, ill-founded criticisms, and forgive me that I have, by this time, made your eyes and head ache with my long letter. But I cannot forgo hastily the pleasure and pride of thus conversing with you.
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December 06, 2014, 01:07:30 PM
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It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.

Interesting insight. Does this money come from new adopters ?
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December 06, 2014, 02:13:32 PM
 #6

I hope OP is right!

I have been watching Bitcoin price for a while and lately I have seen some trends that also call for a rally.

But like in all markets, news kill trees or analysis... News is King.

Let's keep watch!
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December 07, 2014, 04:43:21 AM
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It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.

Interesting insight. Does this money come from new adopters ?
This money needs to come from the overall market as a whole, however the figure is incorrect.

There is 3.6k~ additional BTC that is mined every day, however all of this is not sold. For example anyone who has purchased a cloud mining contract will likely not sell their newly mined bitcoin, also many people will probably not sell their bitcoin above what it costs to cover their electric costs
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December 07, 2014, 05:23:39 AM
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I am getting the vibe since the beginning of the November, but that's it, no update from there, C'mon bitcoin.

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December 07, 2014, 08:41:12 AM
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It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.

Interesting insight. Does this money come from new adopters ?
This money needs to come from the overall market as a whole, however the figure is incorrect.

There is 3.6k~ additional BTC that is mined every day, however all of this is not sold. For example anyone who has purchased a cloud mining contract will likely not sell their newly mined bitcoin, also many people will probably not sell their bitcoin above what it costs to cover their electric costs

If we've got 3.6K surplus each day, any hoarding will be sold later. It doesn't make any difference if they are sold right away or hoarded. It's an average number. If all surplus is hoarded today, we need twice demand tomorrow.
kzcoin
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December 08, 2014, 11:04:14 PM
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It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.

Interesting insight. Does this money come from new adopters ?

Yeah, either new adopters or old adopters buying more bitcoin with their fiat.
kzcoin
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December 08, 2014, 11:22:59 PM
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It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.

Interesting insight. Does this money come from new adopters ?
This money needs to come from the overall market as a whole, however the figure is incorrect.

There is 3.6k~ additional BTC that is mined every day, however all of this is not sold. For example anyone who has purchased a cloud mining contract will likely not sell their newly mined bitcoin, also many people will probably not sell their bitcoin above what it costs to cover their electric costs

If we've got 3.6K surplus each day, any hoarding will be sold later. It doesn't make any difference if they are sold right away or hoarded. It's an average number. If all surplus is hoarded today, we need twice demand tomorrow.

Yeah it shouldn't matter if the coins are hoarded since that means the monetary base is larger but the market cap is the same so the price per coin should be lower anyway.
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