Major fall in BTC price (16th Jan)

[jman0war]

Problem is that Bitcoin was always speculative. It's not a currency. It's simply an asset that people own. They might be able to exchange it for something (unlikely at the moment) so all they can do is buy and sell it just like any other unproductive asset like a limited edition picture.

I don't follow this line of thought.
Bitcoin was designed to be a currency and since it's inception right up to this very day, people use it as such.
In fairness I would say the majority of holders of bitcoin are not using it as a transaction medium every day, but that doesn't mean they are unable to.

Certainly since 2017 when blocks became full we've seen bitcoin use cases change.
But it's a work-in-progress and since Layer2 solutions are basically coming online now, i would expect to see that transactional use case start getting more common.

 

[Duke of Marmalade]

Out of curiosity, does anyone know what the breakeven cost of Bitcoin is? At what price, does it stop being cost effective to mine as I would imagine the mining costs are huge.

The breakeven cost is I guess a few cents. That is the minimum of effort that would be necessary to secure the blockchain. Securing the blockchain is no big deal but what Satoshi decreed in the protocol was that a block could only be added every 10 mins. There is a reward in bitcoin (I think currently 12.5 bitcoin) for winning the puzzle race to add the next block to the chain. That is $125K to the winner. So naturally gone are the days when anyone with a home laptop could win the race. The difficulty of winning the puzzle race is automatically adjusted to target that 10 mins objective. With the rewards so high the puzzle has become a staggering trial and error "find the hashkey" task which can only be realistically tackled by mega computing power.

 

[tecate]

The breakeven cost is I guess a few cents.

The breakeven cost is I guess a few cents. With the rewards so high the puzzle has become a staggering trial and error "find the hashkey" task which can only be realistically tackled by mega computing power.

I'm not sure how you balance those two statements. I've heard figures bandied about - I don't have a link to same right now but breakeven is currently a considerable amount. Again this (energy use) is something that will evolve. The addition of level 2 solutions may mean that the mean electricity usage may drop considerably. Otherwise, miners are getting creative and partnering with energy producers who simply waste energy at the point of source (energy that can't go onto the energy network at that time) by co-locating. There are also other crypto's that are not as energy hungry...and perhaps in the future btc may lose ground to them (if mean energy usage doesn't fall back some).

 

[jman0war]

In my opinion the energy-use 'cost' of bitcoin is simply market economics at work.
If bitcoin was not profitable to mine than miners wouldn't do it.
Less miners means the difficulty adjustment lowers so less computations are required to solve the puzzle (less energy used).

The "problem" if there is one, I guess is how that electricity generation occurs.
But this is not a bitcoin problem.

Additionally what i think is occuring here, is that some people would rather that electricity be used for other things.
But that's not really how markets work, unless you want to distort the market via dictates and interference.

 

[TheBigShort]

And it may help Shortie. He has reduced his position and maybe the discussion on AAM has helped him making this decision.

It was the trajectory of the declining price that spooked me and caused me to sell. Ive always been open to, and still am, that bitcoin could return to zero. But I dont think it will anytime soon.

it's not going to convert Shortie or FP or any of the others.

Unfortunately you have a habit of misrepresenting my views. Again, to repeat, im open to the possibility that it may return to zero. I just dont see any reason for that occuring anytime soon.
However, I am open to its potential. I first heard of bitcoin when it was circa €80. I was as dismissive as you. I first tried to buy some when it was €800 out of pure curiosity. I eventually both some at €2350, again out of curiosity and I went on a speculative ride. Its paid off, but im more interested in this space more than ever.
Its fascinating to dip your toe in the water and to listen to this tech heads to the ideas and concepts they have.
I cant say I understand all of it or where its all going but I strongly believe that the way people transact with other is heading for fundamental change.
Bitcoin may, or may not, be a part of that. If it is, it has value.

I might undervalue a house at €100k and you might overvalue it at €200k. But it's worth something. Its worth can be estimated by the rent saved over my life-time or some other financial calculation.

An Elvis Presley Gibson guitar sold for $300k at auction. These guitars are mass produced and retail between€500-€3,000.
The $300k price tag is generated by nothing other than sentiment, speculation and/or greed.

 

[Duke of Marmalade]

I'm not sure how you balance those two statements.

I suppose "breakeven" costs needs defining. I take it to mean what is the price of bitcoin that just justifies the mining costs. That depends on two things - the price of bitcoin; the difficulty of the puzzle. They interact with each other. As the price goes up the rewards attract more CPU power, currently far more CPU power than is necessary for the basic purpose of mining - to secure the blockchain. The result is that to achieve the 10 minutes objective the difficulty of the puzzle which secures the blockchain has to be made astronomically greater than is needed for purpose.

If bitcoin falls in price there would not be sufficient reward for current CPU power and so marginal miners will drop away making it longer than 10 mins to win the race to add a block. But then the protocol kicks in to make the puzzle easier. This process can continue until the bitcoin price is back at its earlier levels of a few cents. If it fell any further then there wouldn't be enough interested CPU power to meet the minimum standards for securing the blockchain. That is what I call the breakeven cost of bitcoin mining. Though in theory transaction costs could kick in which would adjust to reward the minimal CPU mining power necessary to secure the blockchain.

Another definition might be what is the bitcoin price that would keep current committed CPU power still interested. I don't know the answer to that.

 

[Brendan Burgess]

Unfortunately you have a habit of misrepresenting my views.

Have I? If I have this is not an example.

I am not representing your views at all. I am just pointing out that what we say is unlikely to change your views.


Brendan

 

[tecate]

The point I was making is that break even cost is far higher than the few centsyouc alluded to.

 

[Brendan Burgess]

An Elvis Presley Gibson guitar sold for $300k at auction. These guitars are mass produced and retail between€500-€3,000.

So what?

A first edition of Ulysses owned by James Joyce may be worth €1m while you can buy a copy for €5 in Easons.

These have associative value. They are often unique.

Brendan

 

[Duke of Marmalade]

The point I was making is that break even cost is far higher than the few centsyouc alluded to.

Obviously that is the case today. I thought Sunny was trying to get at what price does it become unviable for the miners. The answer is practically never, there just would be less miners with much easier puzzles but they would be capable of securing the blockchain merely on transaction fees. That is how Satoshi planned it.

 

[TheBigShort]

I am not representing your views at all.

I am just pointing out that what we say is unlikely to change your views.

But im open to changing my mind on all of this. I have that repeatedly said that.
If you happen to say something of significance in this area, it would be folly of me to ignore it.
"Bitcoin is worthless. It will return to zero", says something, but also lacks any persuasive argument at this point.

A first edition of Ulysses owned by James Joyce may be worth €1m while you can buy a copy for €5 in Easons.

These have associative value. They are often unique.

'Associative value'? What financial calculation determines that?

 

[jman0war]

These have associative value.
Brendan

"Associative value", really?
You are now in the realm of the Subjective Theory of Value.

Welcome.

 

[Brendan Burgess]

"Bitcoin is worthless. It will return to zero", says something, but also lacks any persuasive argument at this point.

That suggests to me that you are not open.

This is simple enough.

I have a bag of hot air in my hand. I saw it's worth $20,000 , I must then show it's worth that.

It is not enough to tell you to disprove it.

Bitcoin is worth nothing. You might be prepared to pay $10,000 for it. But that does not mean that it's worth it.

Bitcoin has no associative value. It has no artistic merit.

If you can't understand the difference between a few digits and a copy of Ulysses owned by James Joyce, then fire ahead buying Bitcoin.

I am unable to change your mind with reason.

Brendan

 

[jman0war]

You haven't made any actual arguments.
Only statements.

You haven't even explained your theory of "intrinsic value."

I'll help you though, it usually refers back to the Labour Theory of Value - thoroughly debunked.

 

[Duke of Marmalade]

I think imaging their reasons is immaterial.
They could accept sea shells for the apartments and that means they've used sea shells as a currency.

The stated thrust of the article was to demonstrate that bitcoin was rapidly gaining viability as a currency. I'm sorry but a situation where the vendors get rid of the bitcoin as quickly as they might a hot potato and that the main "natural" purchasers were the criminal classes does little to prove the case.

Let me explain what I mean by "natural". For a US citizen the natural currency is the dollar, for a UK citizen it is the pound etc. The only natural users of bitcoin would appear to be miners or criminals.

 

[TheBigShort]

That suggests to me that you are not open.

This is simple enough.

I have a bag of hot air in my hand. I saw it's worth $20,000 , I must then show it's worth that.

It is not enough to tell you to disprove it.

Bitcoin is worth nothing. You might be prepared to pay $10,000 for it. But that does not mean that it's worth it.

Obviously if you consider it to be nothing more than hot air its not worth it.
If you consider it to have the potential to establish an alternative means of transacting wealth without the interference of central banks and governments distorting the price, then it has value.
What that value is, is determined by the market.

I certainly wasnt equating Joyce to bitcoin. Merely pointing out that the additional value added to first edition copy owned by Joyce, the associative value, is highly speculative and determined only by those who with the sentiment for that associative value.
Thus, such a copy of Ulysses holds value far above anything I would consider it to be worth. I might think it is worth €10k. Somebody might pay €100k for it. Personally, the 90k difference is nothing more than hot air.
But who am I to decide? Surely the market is the efficient way of deciding the price of anything?

 

[jman0war]

maybe it's me but I am finding it rather difficult to get my points across. I presume when sea shells were the chosen currency it was the best available. All conventional currencies have the feature that they are for many the best available for the purpose. I posit that when it comes to bitcoin that (a) a very tiny proportion of transactions are for purchasing goods and services (b) of these transactions very few would be the "natural" choice of currency. The exception might be the criminal classes.

If people use Bitcoin as a transactional medium, using it as "money"; then that is what it is.
If people use use sea shells as a transactional medium, then so it is also "money".

Money and currency; is an expression of value between contracting parties.

 

[tecate]

Let me explain what I mean by "natural". For a US citizen the natural currency is the dollar, for a UK citizen it is the pound etc.

So we can NEVER look to change that? Very open minded.

The only natural users of bitcoin would appear to be miners or criminals.

Thank you - so you're calling me a criminal now. Classy.

 

[jman0war]

Duke, in response to the mis-management of the 'money'; Bitcoin was created.
With Bitcoin we are separating Money from State.

 

[Duke of Marmalade]

Thank you - so you're calling me a criminal now. Classy.

I presumed that the only folk whose main source of income was in bitcoin and who were therefore natural users thereof were miners and criminals. But if your main source of income is bitcoin and you belong to neither class, sincere apologies. Do you mind telling AAM what your main source of income is? I'm truly intrigued.

I also note that your faith in bitcoin is founded on the very open minded vision that US and UK citizens will abandon their cherished currencies in favour of the crypto. You are right, I have a closed mind on that, it won't happen. The fact that there are people like you who foresee that happening helps explain the ludicrous price.