There is one theory that no one here has mentioned yet: that Mt. Gox was responsible for Bitcoin's meteroic rise in price, and now that Mt. Gox has fallen, the price has been deflating.
There is speculation that Mt. Gox had been fractional for at least 6 months, and that Karpeles tried to buy back his losses and wound up igniting the $100-to-$1200 spike.
It's interesting that the price has fallen since then, and continues to fall. Either everyone is simultaneously becoming wary of Bitcoin, or there are other forces at work.
The other possibility is that since coin is concentrated into the hands of a few, those few can tank the price if they feel like bailing out.
Also, it's probably a good thing that the price has been correcting itself. It's still dangerous to its users, so until the fundamental problems are fixed, it probably shouldn't be priced too highly. I've written about why it's dangerous to its users here: https://news.ycombinator.com/item?id=7521906
>There is speculation that Mt. Gox had been fractional for at least 6 months, and that Karpeles tried to buy back his losses and wound up igniting the $100-to-$1200
This is one of those moments when I feel like I'm missing something obvious (or a key piece of info), but wouldn't the fact that Mt Gox had gone fractional mean that they had created a lot of artificial supply that should have put downward pressure on the price? Further, wouldn't that pressure be somewhat proportional to the upward pressure he created with the buy activity, given that he was trying to make those fractions whole again?
Edit: It just seems that there had to be some outside demand that subsequently dried up. Otherwise, we would expect to see at least a gradual, steady decline in price as he created more and more artificial supply. I suppose that could have then been folllwed by the dramatic rise if he was in too big a hurry in his recovery buying, but again, there seems to be some actual demand that went missing at some point.
I don't follow it closely like you but I'd look at the chart relative to the US IRS ruling. Prior to that BitCoin had a lot of potential as a currency and financial asset. That ruling really knee capped the currency potential and thus limited the upside.
As someone who holds Bitcoin this is the one thing that has concerned me the most. Mt. Gox has seemed incredible shady. What if they have been manipulating the market all along?
Is anyone tracking how much money miners are pulling out of bitcoin on a daily basis? I assume they have to sell some fraction of their earnings in order to pay for hardware and power. This should create a constant downward pressure on the price, since there always has to be new money flowing into the system, but very few people "need" to buy bitcoin in the way that miners "need" to sell (most buying is for speculative purposes).
This is almost the opposite of public companies, which rarely issue new shares, and have a constant buy pressure coming from 401k plans and other automatic investment vehicles.
If the market were efficient, it would already price in the dilution from newly minted coins, as it does for share dilution in the stock market (which is actually quite common due to employee stock options). However, every indication is that the bitcoin market is not at all efficient. It is largely driven by speculators playing a greater fool game, not investors who are betting on intrinsic value per bitcoin based on a future estimate of coins outstanding. The result has been a series of manias and panics, which will continue until real buyers enter the market.
3600 coins are currently added to the system per day. There are currently ~12.6M coins in circulation.
So that's an increase of .02% per day.
This doesn't come close to accounting for the price swings we've seen in the last 6 months. There are much larger forces at work. What these forces are exactly is...difficult to determine.
The short answer is that miners are hoarders, and this is based on a few things:
1. In theory difficulty and hash rate should follow the bitcoin price, but they don't. You'd think that as price decreases difficulty re-adjusts as miners pull out but difficulty and hash rate continue to increase and are completely disconnected from the price. Charts:
Because of the disconnect, you can conclude that most mining business models are based on the future price of bitcoin. The miners are either true believers in the future potential, or they are effectively stuck because they have sunk upfront real USD but are currently mining at a loss and have no choice.
2. Most mining at the moment is being done at a loss. This continues from point 1, but if you look at a mining calculator your can work backwards and calculate at which electricity price point mining is currently profitable at.
As an input for our calculation, lets assume all miners are running the equivalent of a KnC Neptune, a new 20nm-based board that hasn't been released yet but it due out in a month or two (hah!):
Your gear is generating $32 per TH per day, so $96. To pay off only your hardware would take 104 days, this is with 0 electricity cost. You'd need to find electricity
at a few cents per kw to break even[0]. The sums aren't good.
[0] This is possible in only a couple of places, mostly scandinavian nations with geothermal electricity supply or nations where electricity is subsidized like China and India. Even at a low 8c/kw your hardware (which is being delivered) is paying itself off in 118 days at todays difficulty rates (which won't hold).
3. A big problem with mining is that your investment decision is inelastic (not sure if that is the right term). You decide to invest at todays difficulty and bitcoin rate but outside of cloud-based mining you don't actually get started mining after placing your order for at least a month, often 5-6 months. So that means when there are little openings in the window for mining profitability everybody piles on, and you find when you get up and running that your mining estimates are an order of magnitude off because a lot of other people had the same bright idea.
The hashrate and difficulty charts show that with their increases. If you plotted the announcements of new generation mining gear against those charts in the same way Google News does you'd likely find that each big spike is equal to in time as new_mining_gear_announcement_date + new_mining_grear_delivery_date
4. Newly mined coins can't be transferred for at least 100 confirmations. This was an impromptu patch applied by the bitcoin project and a number of markets to defeat some sort of bug, but I can't recall or can't seem to find the details at the moment and can't recall what it was fixing or if the 100 number is correct. If anybody knows the details of this, i'd be interested in finding it again.
So when looking at the blockchain for newly minted coins, you'll never see them move immediately, there would be an at least 100 transaction delay (which isn't long in real time terms).
5. On non-volatile days the markets combined trade around 15M coins. On highly volatile days like today the combined volume exceeds 120M coins. 3,600 new coins are mined per day, so their input ranges from 0.01% of coins traded to 0.002%.
Note that this is traded volume, rather than percentage of coins, and the low trading days are often only a few million transactions per day.
6. You can follow the newly mined coins on the Blockchain. Ghash.io is anywhere from 35-50% of the total hash rate (which in itself is controversial) and their newly generated coins go to this address:
You can see that most of the coins remain unspent, and GHash.io is a unique case where you'd expect more of the coins would be spent, which i'll explain in my next point.
7. The hash rate and return itself has now become commoditized and can be traded like a derivative. cex.io was a pioneer here and they have an active market for buying and selling GH/s mining. Their pool is the GHash.io pool mentioned above.
Their current price for a GH/s of mining hashrate is 0.01058690 BTC, or around $4.03 USD. If you compare to the yet unreleased Neptune above, it is $4030 per TH/s vs the Neptunes $3,333 per TH with no electricity costs - and you can move in/out as you wish.
I have previously profitably traded on cex.io using an automated trading bot. It hasn't been active in a long time because I haven't updated it to suit the new conditions.
Here is my referral link to signup to cex.io, I get 10% of whatever you purchase:
I'll likely bump the version currently there with my new strategy interface in the next few weeks since I believe there are new opportunities in GH trading again on CEX. If you're interested in trading strategies, get in touch. The most basic mechanism in that bot will take your mining return and pour it back into purchasing GH/s so that your returns are compounded.
A lot of the return you get in CEX is from the other coins that are mined alongside Bitcoin when you purchase GH/s.
Note that nothing in the bitcoin world really makes sense, so the rules from normal public stock markets or strategies that might work there don't apply in the bitcoin world. You can see from the disconnect between hashrate, difficulty and price that a large part of Bitcoin price and market movement is speculation and emotion driven. You can still take advantage of this, though - as a lot of the price is driven by news events and emotional reactions to them.
Since it is so easy to move in/out of mining on CEX, you'd assume their mined coins are more liquid than the miners who setup long-term projects and are looking for a return based on future bitcoin price, but even at the CEX.io address you see only a small number of coins being moved.
8. In theory it would be possible to go back through the blockchain and measure/quantify what percentage of newly mined coins in a certain time period are being spent. Anecdotally i'd estimate the percentage is very low, and that most coins in circulation are greater than a year old (eg. i'd estimate 99.5% of traded coins were mined +1 year ago).
tl;dr: the current mining business model is based on future bitcoin price, most newly mined coins are held.
the other issue i keep thinking about related to miners are the people who sank millions into mining rigs. if you look at the hash rate / difficulty of finding new blocks, compared with the cost of the equipment and time required, seems like the incentive for mining is going to drop pretty significantly.
so perhaps they hold onto their supply, instead of selling at what they think is an artificially low price. but perhaps they panic and decide to unload - prices falls further. either way, the calculation that got them started is much less attractive.
plus, if the incentive to mine drops, the processing power of the network drops, could eventually increase the likelihood of a hack.
I believe that at this point the amount of bitcoin being mined is so small in comparison to the amount that is out there, that this should be a negligible effect.
Someone please correct me if I'm wrong, but looking at hardware prices, might also support the case that "miners are hoarders".
(Please excuse the sketchy math in the following post. these figures are just based on searches on Ebay/Google. Most of all I don't know who's doing the majority of the mining and at what scale.)*
(Low End) ($490 investment in mining)
At the current level of mining difficulty a machine that has a hash rate in the 200/g/. Returns about $6.00 worth of BTC a day.
http://www.alloscomp.com/bitcoin/calculator.
I searched "200 gh/s" in a site that crawls Ebay, The machines for sale at this hash-rate costs about 490. You would recoup the cost of the machine in 81 days.
If it takes 81 days to break even on your investment, even if bitcoin doubles in that time frame you basically made the price of the machine as profit ($490 in 81 days). (meh)
(High End) (18k investment in mining)
Machines in the single digit tera-hash realm come in at under 20k, they peak at 15-20K per machine. Let's average the price at 18k. They make $90 a day according to the calculator. This would mean you would need 200 days to recuperate the cost of the machine.
In this case it takes 200 days to break even on your investment. If bitcoin doubles in that time frame you made 18k in 200 days. (the online calculator said power costs in this time frame are around $70.)
I'm assuming individuals in both these positions are have long-term holding in mind. My rationale is: getting substantially richer in either case requires the price per coin becomes drastically higher. You're also not hemorrhaging money in either case (power costs seem reasonable). It makes more sense for miners to hold as much of what they mine as possible. Both positions seem to hedged on a BTC being priced a lot more higher, in this sense hard to imagine miners to be selling in great quantities.
I also feel that people DIRECTLY buying and selling bitcoin would dwarf the selling pressure of the majority of miners. The barriers of entry for this also seem much lower than setting up the hardware.
personally I have been mining Litecoins for 6 months and am just about ready to turn off my rig. Electricity cost vs. difficulty level isn't make it worth it anymore. For the record, I have not sold and don't plan on selling any of my LTC. I will be holding onto them until virtual currency becomes as mainstream as is portrayed on "Almost Human".
Not that different from how paper currencies like the US dollar work in terms of money supply though.
Of course, Bitcoin is not issued by a QUANGO whose chair appointing government has 10 aircraft carriers, over 5000 nuclear missiles and so forth. Anyone can start up a Bitcoin like currency (Litecoin, Dogecoin etc.)
All of this talk, all of these comments, the charts in the TechCrunch article, etc. All of this is talking about Bitcoin the Speculative Investment. Bitcoin the Get-Rich-Quick Opportunity. Bitcoin the Penny Stock. Bitcoin the Internet Stock. Bitcoin the Tulip Bulb.
Bitcoin the Currency doesn't have a chance of taking off until all of the above go away. When they do (if they do?), THEN we can have a real conversation about the future of money. Until then, however, this is going to be the same pattern we've seen over and over again for thousands of years. I hope for the sake of the folks that have invested $millions (VCs, etc.) that this time it's really different.
Indeed, I've used Bitcoin since 2011 and never for speculating. I buy servers with it primarily and now use it to easily transfer money. Wait until the ETFs start trading, speculation into the stratosphere but at least it might eliminate crashes from incompetent exchange operators.
For money transfer, I freq hire foreign employees for a variety of things like scouting large markets in Lagos to see what kinds of apps can be made for it, a survey on local Pakistani payment methods and currency exchange storefronts, translations in various countries ect. Paying by using existing remittance methods like western union and others had me flagged immediately and all my outgoing transactions were seized for "proof of income" and all sorts of other nonsense, even for small amounts like $150 transfer to Sri Lanka. It doesn't matter if I do this completely transparently, and operate through a business once you start moving money to the developing world and they aren't family members problems arise.
I now send them bitcoins and direct them to whoever is cashing it out on localbitcoins.com.
In every case, they made more money than what I sent them since supply of bitcoins in those countries is scarce so worth much more than the price I paid(1). Argentina localbitcoins is paying almost 2x what I buy them here for.
(1)Of course I've also lucked out, there hasn't been a massive price drop between sending the coins and cashing them like there was the other day when it fell almost $200
Edit: Another bonus of bitcoin is 3rd party payment. I can pay somebody local here cash at a cafe a block away and they directly load the bitcoin address of my contractor, so I don't even pay micro transfer fees, or even need to handle coins myself. Usually it goes straight to their localbitcoin.com account and within 20mins they can sell the coins, reducing price fluctuation risk.
100% agree. I see parallels between Bitcoin of 2010s and dotcoms of the late nineties - overvalued, overhyped, and predictably crashed hard. But what once the crash cleared all the hype and hysteria, what was left was something useful. And that's why tech is booming now.
I foresee the same for Bitcoin. It will crash hard - heck, one could argue that it already has - but once people stop seeing it as an "investment" and start seeing it as something useful, cryptocurrencies just might rise again.
The conversation you're talking about is always happening, on IRC channels and mailing lists where work is actually discussed and merit trumps speculation.
Another bad thing about bitcoin is that even traders who sell real products and services for bitcoins use dollar as a price, and then convert it to bitcoin in real time. This makes bitcoin completely unnecessary, it doesn't add value to bitcoin, but the opposite - everyone start assuming bitcoin is like some virtual dollar tokens that have no meaning if there are no actual dollars involved.
That's true, but the solution is not to stop talking. The solution is to finish the conversation. The world needs to come to consensus about what Bitcoin is and how its value moves, so that a price can be set and we can move on. The way to get to that point faster is to help the effort to answer those questions.
A lot of people calling "crash" and saying the bubble has burst. Yeah it's "crashed" back to double what it was a year ago at it's peak. People in the Bitcoin world have extremely short-term memories. Remember the April 2011 crash? Oh you don't, well then have a look at this chart: http://arstechnica.com/tech-policy/2011/10/bitcoin-implodes-...
I think people who have amassed a quantity of these are going to learn a real lesson in the meaning of value. There's a reason precious metals like gold and silver have retained value for millennia, and schemes like this have not.
The VCs who have peddled this garbage are going to look like a bunch of frauds and fools. Not that it will materially affect them. The Cassandras who have been warning about Bitcoin will continue to be ignored, the press will still beat a door to put a microphone in front of these snake oil peddlers. With the talk of a bubble - if there is any sign of a bubble, it is a bunch of useless hashes like Bitcoin becoming worth $5-12 billion.
I suggest anyone who bought Bitcoins go read the Bitcoin FAQs of why Bitcoins are worth anything. It is complete nonsense. Moreover it is not falsifiable. It is basically "they are worth something because people think they are worth something". So even if Bitcoin crashes, that theory can still stand, since it can not be falsified. That stripe of value theorist can just say people stopped thinking Bitcoins were valuable, so their price fell.
Wise people can take the rise and fall of Bitcoin and ask real questions about where the value of commodities come from. The answer of the Bitcoin theorists, which is not that far off from mainstream economists, is a far cry from what economists like Benjamin Franklin, David Ricardo, Adam Smith thought the value of commodities came from.
I already mentioned how precious metals have retained value over millenia. Some Bitcoin advocates point to the dollar and say if the dollar retains value, why can't Bitcoin? This is a complex issue which would take too long to go into here. For one thing, the dollar does not retain its value - a dollar from today is worth much less than a dollar in 1978. Also, the conspiratorial gold bugs who say the dollar is about to collapse are probably overstating the immediacy of the problem - but that does not mean there is not a kernel of truth to their worries about paper currency. Just look at the history of currency from antiquity up until the Weimar Germany Mark to see why. No magic bullet has been found since then making the dollar bullet proof. Their worries may well be found to be correct, although probably are nothing to worry about for several decades.
It doesn't really matter. Even if bitcoin drops to five cents a coin, it can still be used as a currency. It's only bad for people storing their wealth in bitcoin which everyone knew was a bad idea - it's always been extremely volatile. The hope is that someday it will stabilize, but no one was ever claiming that it was in the present.
I'm sick of people treating the exchange rate of bitcoin as a metric for how successful it is. It doesn't matter.
>There's a reason precious metals like gold and silver have retained value for millennia, and schemes like this have not.
Ironic you would mention that. Gold only has value because people believe it has value. It's also somewhat volatile and not immune to bubbles.
Paper currencies are far more widely used and accepted than bitcoin and work just fine.
Great post. I'm fascinated by bitcoin. I think that a lot of good papers will be written about it, we as a world will advance our understanding of economics a bit, and it will inspire things that will outlast it by far. I'm not interested in buying any. Very unusual natural experiment.
Money is used to exchange goods and services between people. Any kind of money has inherent utility value, just by being money. Bitcoin is currently the best form of money ever invented. Speculative market value predicts this utility value.
I see the bagholders and snake oil peddlers have downvoted me into oblivion (Edit: Actually my parent post is ping-ponging but in negative territory at the time of this edit)
Here is a post I made 143 days ago, at a time when Bitcoin was seeing high after high every day -
Bitstamp Bitcoin was worth $460 that day. Today it is worth $350.
People who would have listened to me and those who agree with me then would be a lot better off now, especially if they had shorted Bitcoin (which is doable, sort of).
I was right saying Bitcoin will go down. It will continue to go down. That the Bitcoin bagholders and snake oil peddlers of HN will downvote me into oblivion is instructive. Not that I mind, I am only losing a little bit of HN karma while they have obviously lost thousands of dollars. They would be better off cutting their losses and trying to learn a lesson about their mistaken belief system then deciding to remove karma from those who observe that the emperor wears no clothes.
> There's a reason precious metals like gold and silver have retained value for millennia
Yeah, because gold and silver are good to use as money. They are fungible, long lasting, easily identifiable, can be divided without losing total value.
Kinda like bitcoin, except it can be traded with anyone with a computer over the Internet.
No, and for the same reason a plane takeoff is never called an upwards "crash". "Correction" is just a term for a smallish or slow-moving crash. It's just how the word is defined. When skeptical people reference increases, they'll call it pumping or manipulation or whatever.
It's amazing to me how much price movements create news. Often people think the causality is the other way around; that there is some underlying news that must be responsible for price movements. Prognosticators in the stock market are forever looking for reasons for the price movements. Simply supply is greater than demand.
In the greater scheme of things this fall is no more significant than the last falls when bitcoin dropped from $30ish to $2, or when it dropped from $267 to $50ish. The question still remains: will bitcoin become a standard for online payments and a medium of savings? If it will, it will be a bargain whether it's $10, $100 or even $1000, and all these price movements, and the kerfuffle they cause will seem amazingly quaint to those looking back on the past (our present).
Just because there is a slim chance bitcoin might end up being worth 2,000x what it is right now does not mean it's current price is meaningless. I would buy a lot of power ball lottery tickets for 1 cent but at 1$ a pop there a poor investment.
Bitcoin price action has been suffering for the past few weeks. First the Mt Gox debacle, then China banning banks from processing it, then the IRS declaring it taxable as a property.
The major impact of that last decision will be on consumer adoption. Now, every time I want to make a transaction, I need to keep track of my taxes. I know that some wallet services are already developing ways to keep track of this automatically, but that's just an extra headache for the average consumer. This in essence will force consumers to think of bitcoin more as an investment, rather than a "currency" they can spend, and that will impede adoption.
I know nobody here likes to hear it, and I feel like a lot here in SV are tuning this out, but bitcoin is really, really struggling to find a relevant use case with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either. Add price volatility to that and it kills the consumer use case.
BUT PAYMENTS IS A TWO-SIDED MARKET. A winning product must appeal to both sides, the buyer and the seller. Bitcoin appeals to the seller at the expense of the buyer.
Consumer adoption is going to determine whether or not it succeeds on a grander scale. Unfortunately, Bitcoin does not solve a problem for consumers. Especially with tap-tap mobile payments around the corner.
When it comes to money, consumers want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had in forever to adopt a system that does not provide them with significant advantages.
I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin gaining traction with consumers, in part because of the huge regulatory risk. Any significant threat to the banks' business will be met with harmful regulatory control (friendly reminder: Wall Street banks fund the largest political lobbies in Washington). It could be destined to eternally remain a store of value (like gold) or find very targeted applications (like specific types of machine-to-machine payments). The underlying blockchain technology could be of more use (if adopted by the banking system, for example) but that is still far in the future.
"Now, every time I want to make a transaction, I need to keep track of my taxes."
I don't think it is really that bad. To keep things simple you can just have two accounts one for your long term BTC investment where you have cap gains and losses and another for your spending money that is empty unless you want to buy something and then you buy enough BTC for your transaction which you immediately spend so you have no gain or less to keep track of.
I'm still kicking myself for buying a bit at $17 after the $32 peak and selling as soon as it came back up to that again some months later. I feel like buying again.
Any possibility this could be partly due to coins stolen in relation to the Heartbleed exploit being cashed out? Even if it's just a single individual who gained access to a large stash, dumping it via the exchanges could be playing a part. Perhaps their motive would be to cash out before anyone catches on and starts trying to trace their transactions/withdrawals.
Care to explain? Taxes apply to capital gains, which are only realized when you sell. Not to holdings. People who have large coin balances don't owe taxes unless they sell coins, and then the tax is a percentage of the sale.
Sure. If one had conviction that it would rise. One could buy now and see it at 10 bucks by the end of the week. If one had that belief... One would not invest.
If you have conviction BTC will be back then of course you'd get in now. But people thought getting in at 600 was a deal at one time... Look where we are. Those people aren't too pleased if they had conviction it was going to 1000 again.
If volatility has taught us anything, it is to be wary. Volatility means up-swings and down-swings. Perhaps the past year was just an up-swing and we're doing some mean-reversion. It's foolish to make blanket statements.
>>> If bitcoin's volatility has taught us anything.
Not sure if this has been touched on before, but is there manipulation going on with BTC? With traders who have a bigger stake making the price go up and down, or is this pretty natural for the cycle?
I'm actually interested in this. If there's another thread on HN talking about this, feel free to point me in that direction.
It hasn't existed long enough to confidently predict any trend (and the efficient market hypothesis suggests that's impossible even if it had.) It could drop to sub $200 and stay there forever for all anyone knows.
When the announced they had amassed over 1% of all Bitcoins and they had been buying for months, you could calculate their average buy price. I did that and it worked out to be about $10 - $30 a coin.
Gonna be a nice quick plunge down to the low $200s. I feel bad for anyone who bought a lot around $800 -- you'll be waiting months to recoup that investment.
Or it could be forever... You just spoke the exact words that were spoken about WorldCom, Enron, etc. etc. Just sit tight, buy low, hold. Dollar cost average on the way down, blah blah blah.
If it takes me a few months to recoup my losses, that's okay. My biggest concern is that it'll level out around $95 and never rise up to $800 ever again.
Is this latent damage from the IRS ruling or something? I don't know why I'm still surprised by sudden, massive movement in BTC price, but usually the reasons seem pretty obvious (and over-reported).
Well, I've been ready[1] for this for awhile. It's all coming together nicely[2]. Now I wait for the magical event that sends bitcoin back to the moon at the EOY... or wipes me out.
sillysaurus3|12 years ago
There is speculation that Mt. Gox had been fractional for at least 6 months, and that Karpeles tried to buy back his losses and wound up igniting the $100-to-$1200 spike.
It's interesting that the price has fallen since then, and continues to fall. Either everyone is simultaneously becoming wary of Bitcoin, or there are other forces at work.
The other possibility is that since coin is concentrated into the hands of a few, those few can tank the price if they feel like bailing out.
Also, it's probably a good thing that the price has been correcting itself. It's still dangerous to its users, so until the fundamental problems are fixed, it probably shouldn't be priced too highly. I've written about why it's dangerous to its users here: https://news.ycombinator.com/item?id=7521906
ForHackernews|12 years ago
unclebucknasty|12 years ago
This is one of those moments when I feel like I'm missing something obvious (or a key piece of info), but wouldn't the fact that Mt Gox had gone fractional mean that they had created a lot of artificial supply that should have put downward pressure on the price? Further, wouldn't that pressure be somewhat proportional to the upward pressure he created with the buy activity, given that he was trying to make those fractions whole again?
Edit: It just seems that there had to be some outside demand that subsequently dried up. Otherwise, we would expect to see at least a gradual, steady decline in price as he created more and more artificial supply. I suppose that could have then been folllwed by the dramatic rise if he was in too big a hurry in his recovery buying, but again, there seems to be some actual demand that went missing at some point.
jusben1369|12 years ago
SippinLean|12 years ago
mattm|12 years ago
Avshalom|12 years ago
paul|12 years ago
This is almost the opposite of public companies, which rarely issue new shares, and have a constant buy pressure coming from 401k plans and other automatic investment vehicles.
tpeng|12 years ago
harryh|12 years ago
So that's an increase of .02% per day.
This doesn't come close to accounting for the price swings we've seen in the last 6 months. There are much larger forces at work. What these forces are exactly is...difficult to determine.
nikcub|12 years ago
1. In theory difficulty and hash rate should follow the bitcoin price, but they don't. You'd think that as price decreases difficulty re-adjusts as miners pull out but difficulty and hash rate continue to increase and are completely disconnected from the price. Charts:
Difficulty:
https://blockchain.info/charts/difficulty
Hashrate:
https://blockchain.info/charts/hash-rate
Price:
https://blockchain.info/charts/market-price
Because of the disconnect, you can conclude that most mining business models are based on the future price of bitcoin. The miners are either true believers in the future potential, or they are effectively stuck because they have sunk upfront real USD but are currently mining at a loss and have no choice.
2. Most mining at the moment is being done at a loss. This continues from point 1, but if you look at a mining calculator your can work backwards and calculate at which electricity price point mining is currently profitable at.
As an input for our calculation, lets assume all miners are running the equivalent of a KnC Neptune, a new 20nm-based board that hasn't been released yet but it due out in a month or two (hah!):
https://bitcointalk.org/index.php?topic=347597.0
We will normalize their figures based on price per TH hashrate, and price per GW output. They promise 3TH for $10k, and they promise 2,300W.
So for each TH it is $3.3k upfront, and 733kw/h to power that TH.
Plug those figures into a calculator:
http://www.bitcoinx.com/profit/
Your gear is generating $32 per TH per day, so $96. To pay off only your hardware would take 104 days, this is with 0 electricity cost. You'd need to find electricity at a few cents per kw to break even[0]. The sums aren't good.
[0] This is possible in only a couple of places, mostly scandinavian nations with geothermal electricity supply or nations where electricity is subsidized like China and India. Even at a low 8c/kw your hardware (which is being delivered) is paying itself off in 118 days at todays difficulty rates (which won't hold).
3. A big problem with mining is that your investment decision is inelastic (not sure if that is the right term). You decide to invest at todays difficulty and bitcoin rate but outside of cloud-based mining you don't actually get started mining after placing your order for at least a month, often 5-6 months. So that means when there are little openings in the window for mining profitability everybody piles on, and you find when you get up and running that your mining estimates are an order of magnitude off because a lot of other people had the same bright idea.
The hashrate and difficulty charts show that with their increases. If you plotted the announcements of new generation mining gear against those charts in the same way Google News does you'd likely find that each big spike is equal to in time as new_mining_gear_announcement_date + new_mining_grear_delivery_date
4. Newly mined coins can't be transferred for at least 100 confirmations. This was an impromptu patch applied by the bitcoin project and a number of markets to defeat some sort of bug, but I can't recall or can't seem to find the details at the moment and can't recall what it was fixing or if the 100 number is correct. If anybody knows the details of this, i'd be interested in finding it again.
So when looking at the blockchain for newly minted coins, you'll never see them move immediately, there would be an at least 100 transaction delay (which isn't long in real time terms).
5. On non-volatile days the markets combined trade around 15M coins. On highly volatile days like today the combined volume exceeds 120M coins. 3,600 new coins are mined per day, so their input ranges from 0.01% of coins traded to 0.002%.
Note that this is traded volume, rather than percentage of coins, and the low trading days are often only a few million transactions per day.
6. You can follow the newly mined coins on the Blockchain. Ghash.io is anywhere from 35-50% of the total hash rate (which in itself is controversial) and their newly generated coins go to this address:
https://blockchain.info/address/1CjPR7Z5ZSyWk6WtXvSFgkptmpoi...
You can see that most of the coins remain unspent, and GHash.io is a unique case where you'd expect more of the coins would be spent, which i'll explain in my next point.
7. The hash rate and return itself has now become commoditized and can be traded like a derivative. cex.io was a pioneer here and they have an active market for buying and selling GH/s mining. Their pool is the GHash.io pool mentioned above.
Their current price for a GH/s of mining hashrate is 0.01058690 BTC, or around $4.03 USD. If you compare to the yet unreleased Neptune above, it is $4030 per TH/s vs the Neptunes $3,333 per TH with no electricity costs - and you can move in/out as you wish.
I have previously profitably traded on cex.io using an automated trading bot. It hasn't been active in a long time because I haven't updated it to suit the new conditions.
Here is my referral link to signup to cex.io, I get 10% of whatever you purchase:
https://cex.io/r/0/nikcub/0/
Here is the base open source version of my bot, which doesn't have any of my strategies built in it, but which can be extended:
https://github.com/nikcub/cexbot
I'll likely bump the version currently there with my new strategy interface in the next few weeks since I believe there are new opportunities in GH trading again on CEX. If you're interested in trading strategies, get in touch. The most basic mechanism in that bot will take your mining return and pour it back into purchasing GH/s so that your returns are compounded.
A lot of the return you get in CEX is from the other coins that are mined alongside Bitcoin when you purchase GH/s.
Note that nothing in the bitcoin world really makes sense, so the rules from normal public stock markets or strategies that might work there don't apply in the bitcoin world. You can see from the disconnect between hashrate, difficulty and price that a large part of Bitcoin price and market movement is speculation and emotion driven. You can still take advantage of this, though - as a lot of the price is driven by news events and emotional reactions to them.
Since it is so easy to move in/out of mining on CEX, you'd assume their mined coins are more liquid than the miners who setup long-term projects and are looking for a return based on future bitcoin price, but even at the CEX.io address you see only a small number of coins being moved.
8. In theory it would be possible to go back through the blockchain and measure/quantify what percentage of newly mined coins in a certain time period are being spent. Anecdotally i'd estimate the percentage is very low, and that most coins in circulation are greater than a year old (eg. i'd estimate 99.5% of traded coins were mined +1 year ago).
tl;dr: the current mining business model is based on future bitcoin price, most newly mined coins are held.
lmg643|12 years ago
so perhaps they hold onto their supply, instead of selling at what they think is an artificially low price. but perhaps they panic and decide to unload - prices falls further. either way, the calculation that got them started is much less attractive.
plus, if the incentive to mine drops, the processing power of the network drops, could eventually increase the likelihood of a hack.
unknown|12 years ago
[deleted]
batiudrami|12 years ago
Alex_Jiang|12 years ago
(Please excuse the sketchy math in the following post. these figures are just based on searches on Ebay/Google. Most of all I don't know who's doing the majority of the mining and at what scale.)*
(Low End) ($490 investment in mining) At the current level of mining difficulty a machine that has a hash rate in the 200/g/. Returns about $6.00 worth of BTC a day. http://www.alloscomp.com/bitcoin/calculator.
I searched "200 gh/s" in a site that crawls Ebay, The machines for sale at this hash-rate costs about 490. You would recoup the cost of the machine in 81 days.
http://www.thepricegeek.com/results/200+gh%2Fs?country=us
If it takes 81 days to break even on your investment, even if bitcoin doubles in that time frame you basically made the price of the machine as profit ($490 in 81 days). (meh)
(High End) (18k investment in mining)
Machines in the single digit tera-hash realm come in at under 20k, they peak at 15-20K per machine. Let's average the price at 18k. They make $90 a day according to the calculator. This would mean you would need 200 days to recuperate the cost of the machine.
In this case it takes 200 days to break even on your investment. If bitcoin doubles in that time frame you made 18k in 200 days. (the online calculator said power costs in this time frame are around $70.)
I'm assuming individuals in both these positions are have long-term holding in mind. My rationale is: getting substantially richer in either case requires the price per coin becomes drastically higher. You're also not hemorrhaging money in either case (power costs seem reasonable). It makes more sense for miners to hold as much of what they mine as possible. Both positions seem to hedged on a BTC being priced a lot more higher, in this sense hard to imagine miners to be selling in great quantities.
I also feel that people DIRECTLY buying and selling bitcoin would dwarf the selling pressure of the majority of miners. The barriers of entry for this also seem much lower than setting up the hardware.
jsherman76|12 years ago
dustingetz|12 years ago
kaonashi|12 years ago
You need also to take demand into account.
Ologn|12 years ago
Of course, Bitcoin is not issued by a QUANGO whose chair appointing government has 10 aircraft carriers, over 5000 nuclear missiles and so forth. Anyone can start up a Bitcoin like currency (Litecoin, Dogecoin etc.)
maxerickson|12 years ago
nlh|12 years ago
Bitcoin the Currency doesn't have a chance of taking off until all of the above go away. When they do (if they do?), THEN we can have a real conversation about the future of money. Until then, however, this is going to be the same pattern we've seen over and over again for thousands of years. I hope for the sake of the folks that have invested $millions (VCs, etc.) that this time it's really different.
dobbsbob|12 years ago
For money transfer, I freq hire foreign employees for a variety of things like scouting large markets in Lagos to see what kinds of apps can be made for it, a survey on local Pakistani payment methods and currency exchange storefronts, translations in various countries ect. Paying by using existing remittance methods like western union and others had me flagged immediately and all my outgoing transactions were seized for "proof of income" and all sorts of other nonsense, even for small amounts like $150 transfer to Sri Lanka. It doesn't matter if I do this completely transparently, and operate through a business once you start moving money to the developing world and they aren't family members problems arise.
I now send them bitcoins and direct them to whoever is cashing it out on localbitcoins.com.
In every case, they made more money than what I sent them since supply of bitcoins in those countries is scarce so worth much more than the price I paid(1). Argentina localbitcoins is paying almost 2x what I buy them here for.
(1)Of course I've also lucked out, there hasn't been a massive price drop between sending the coins and cashing them like there was the other day when it fell almost $200
Edit: Another bonus of bitcoin is 3rd party payment. I can pay somebody local here cash at a cafe a block away and they directly load the bitcoin address of my contractor, so I don't even pay micro transfer fees, or even need to handle coins myself. Usually it goes straight to their localbitcoin.com account and within 20mins they can sell the coins, reducing price fluctuation risk.
yen223|12 years ago
I foresee the same for Bitcoin. It will crash hard - heck, one could argue that it already has - but once people stop seeing it as an "investment" and start seeing it as something useful, cryptocurrencies just might rise again.
ewillbefull|12 years ago
cLeEOGPw|12 years ago
erikpukinskis|12 years ago
dwaltrip|12 years ago
The dollar fluctuates in value too. It is just older and bigger, so it moves far slower.
spiritplumber|12 years ago
To me it also shows how speculative markets poison everything they touch (solar panel bubble 2011-2012).
laichzeit0|12 years ago
Here's an even better one: http://www.forbes.com/sites/timothylee/2013/04/11/an-illustr... It has a few crashes up until April 2013.
Get over it.
pmorici|12 years ago
https://twitter.com/barrysilbert/status/454391450353295360
Ologn|12 years ago
The VCs who have peddled this garbage are going to look like a bunch of frauds and fools. Not that it will materially affect them. The Cassandras who have been warning about Bitcoin will continue to be ignored, the press will still beat a door to put a microphone in front of these snake oil peddlers. With the talk of a bubble - if there is any sign of a bubble, it is a bunch of useless hashes like Bitcoin becoming worth $5-12 billion.
I suggest anyone who bought Bitcoins go read the Bitcoin FAQs of why Bitcoins are worth anything. It is complete nonsense. Moreover it is not falsifiable. It is basically "they are worth something because people think they are worth something". So even if Bitcoin crashes, that theory can still stand, since it can not be falsified. That stripe of value theorist can just say people stopped thinking Bitcoins were valuable, so their price fell.
Wise people can take the rise and fall of Bitcoin and ask real questions about where the value of commodities come from. The answer of the Bitcoin theorists, which is not that far off from mainstream economists, is a far cry from what economists like Benjamin Franklin, David Ricardo, Adam Smith thought the value of commodities came from.
I already mentioned how precious metals have retained value over millenia. Some Bitcoin advocates point to the dollar and say if the dollar retains value, why can't Bitcoin? This is a complex issue which would take too long to go into here. For one thing, the dollar does not retain its value - a dollar from today is worth much less than a dollar in 1978. Also, the conspiratorial gold bugs who say the dollar is about to collapse are probably overstating the immediacy of the problem - but that does not mean there is not a kernel of truth to their worries about paper currency. Just look at the history of currency from antiquity up until the Weimar Germany Mark to see why. No magic bullet has been found since then making the dollar bullet proof. Their worries may well be found to be correct, although probably are nothing to worry about for several decades.
Houshalter|12 years ago
I'm sick of people treating the exchange rate of bitcoin as a metric for how successful it is. It doesn't matter.
>There's a reason precious metals like gold and silver have retained value for millennia, and schemes like this have not.
Ironic you would mention that. Gold only has value because people believe it has value. It's also somewhat volatile and not immune to bubbles.
Paper currencies are far more widely used and accepted than bitcoin and work just fine.
Edmond|12 years ago
http://colabopad.blogspot.com/2013/04/bitcoins-agent-smith-p...
I think there is a future in virtual currency but it will have to be anchored to reality.
BorisMelnik|12 years ago
"they are worth something because people think they are worth something".
gold and the paper currency is printed on is only worth something because people think they are worth something.
unknown|12 years ago
[deleted]
pessimizer|12 years ago
Geee|12 years ago
Ologn|12 years ago
Here is a post I made 143 days ago, at a time when Bitcoin was seeing high after high every day -
https://news.ycombinator.com/item?id=6753545
Bitstamp Bitcoin was worth $460 that day. Today it is worth $350.
People who would have listened to me and those who agree with me then would be a lot better off now, especially if they had shorted Bitcoin (which is doable, sort of).
I was right saying Bitcoin will go down. It will continue to go down. That the Bitcoin bagholders and snake oil peddlers of HN will downvote me into oblivion is instructive. Not that I mind, I am only losing a little bit of HN karma while they have obviously lost thousands of dollars. They would be better off cutting their losses and trying to learn a lesson about their mistaken belief system then deciding to remove karma from those who observe that the emperor wears no clothes.
doyoulikeworms|12 years ago
Yeah, because gold and silver are good to use as money. They are fungible, long lasting, easily identifiable, can be divided without losing total value.
Kinda like bitcoin, except it can be traded with anyone with a computer over the Internet.
baddox|12 years ago
mynameishere|12 years ago
ISL|12 years ago
http://en.wikipedia.org/wiki/Value_investing
vijayboyapati|12 years ago
In the greater scheme of things this fall is no more significant than the last falls when bitcoin dropped from $30ish to $2, or when it dropped from $267 to $50ish. The question still remains: will bitcoin become a standard for online payments and a medium of savings? If it will, it will be a bargain whether it's $10, $100 or even $1000, and all these price movements, and the kerfuffle they cause will seem amazingly quaint to those looking back on the past (our present).
Retric|12 years ago
StavrosK|12 years ago
d55|12 years ago
battani|12 years ago
The major impact of that last decision will be on consumer adoption. Now, every time I want to make a transaction, I need to keep track of my taxes. I know that some wallet services are already developing ways to keep track of this automatically, but that's just an extra headache for the average consumer. This in essence will force consumers to think of bitcoin more as an investment, rather than a "currency" they can spend, and that will impede adoption.
I know nobody here likes to hear it, and I feel like a lot here in SV are tuning this out, but bitcoin is really, really struggling to find a relevant use case with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either. Add price volatility to that and it kills the consumer use case.
But... how about micro-payments? Consumers have always hated them. http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.ht.... (Shirky, 2000)
But... how about international transactions? Hard to beat the fees at https://transferwise.com.
Bitcoin is great, FOR MERCHANTS.
BUT PAYMENTS IS A TWO-SIDED MARKET. A winning product must appeal to both sides, the buyer and the seller. Bitcoin appeals to the seller at the expense of the buyer.
Consumer adoption is going to determine whether or not it succeeds on a grander scale. Unfortunately, Bitcoin does not solve a problem for consumers. Especially with tap-tap mobile payments around the corner.
When it comes to money, consumers want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had in forever to adopt a system that does not provide them with significant advantages.
I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin gaining traction with consumers, in part because of the huge regulatory risk. Any significant threat to the banks' business will be met with harmful regulatory control (friendly reminder: Wall Street banks fund the largest political lobbies in Washington). It could be destined to eternally remain a store of value (like gold) or find very targeted applications (like specific types of machine-to-machine payments). The underlying blockchain technology could be of more use (if adopted by the banking system, for example) but that is still far in the future.
pmorici|12 years ago
I don't think it is really that bad. To keep things simple you can just have two accounts one for your long term BTC investment where you have cap gains and losses and another for your spending money that is empty unless you want to buy something and then you buy enough BTC for your transaction which you immediately spend so you have no gain or less to keep track of.
jere|12 years ago
danielweber|12 years ago
omgitstom|12 years ago
jamesisaac|12 years ago
mrb|12 years ago
I expect Bitcoin to start raising again after April 15. Why? https://plus.google.com/100577178258662783679/posts/crrFWPrc...
gress|12 years ago
acomjean|12 years ago
Too many investors not enough users?
As someone who owns no bitcoins I find the whole thing fascinating to watch.
brazzy|12 years ago
This, very much. Bitcoin was designed as a currency, not as an investment vehicle. Most use it as the latter, which causes problems.
unknown|12 years ago
[deleted]
randywaterhouse|12 years ago
If you have conviction BTC will be back then of course you'd get in now. But people thought getting in at 600 was a deal at one time... Look where we are. Those people aren't too pleased if they had conviction it was going to 1000 again.
If volatility has taught us anything, it is to be wary. Volatility means up-swings and down-swings. Perhaps the past year was just an up-swing and we're doing some mean-reversion. It's foolish to make blanket statements.
at-fates-hands|12 years ago
Not sure if this has been touched on before, but is there manipulation going on with BTC? With traders who have a bigger stake making the price go up and down, or is this pretty natural for the cycle?
I'm actually interested in this. If there's another thread on HN talking about this, feel free to point me in that direction.
Houshalter|12 years ago
DonGateley|12 years ago
josephagoss|12 years ago
They won't be hurt for a long time.
kzrdude|12 years ago
rufugee|12 years ago
beedogs|12 years ago
pistle|12 years ago
fiblye|12 years ago
If it takes me a few months to recoup my losses, that's okay. My biggest concern is that it'll level out around $95 and never rise up to $800 ever again.
mmcclure|12 years ago
presty|12 years ago
(not saying it won't take months, but we've seen the price go up 5x in a couple of days..)
wish I had money at this moment.. would be buying :\
muyuu|12 years ago
frade33|12 years ago
desireco42|12 years ago
jafaku|12 years ago
smtddr|12 years ago
1. https://news.ycombinator.com/item?id=7210538
2. https://www.youtube.com/watch?v=eYDkGJmSfy0
__________
Disclaimer: Don't copy what I'm doing unless you understand the risks; I could very well lose all my money... in fact I probably will lose it all :-P
anonbanker|12 years ago
Thanks for the tip, guys and gals.
anonbanker|12 years ago