Replying to Milos

I don’t quite understand this relationship. When gold miners halt production, no gold is mined. But with Bitcoin, isn’t a new block mined every ~10 minutes regardless of the amount of active miners? I.e., isn’t production relatively constant?
Avatar
bitcoinlimit 1mo ago 💬 2

the difficulty gets decreased

Reply to this note

Please Login to reply.

Discussion

5a
Milos 1mo ago 💬 1

But adjusted so that the fresh supply remains constant, right? 3.125 every 10 minutes on average?

Avatar
bitcoinlimit 1mo ago

correct

Avatar
Not a Polar Bear 1mo ago 💬 2

I think the point is…

Hash rate = fn (BTCprice, ElectricCost, MiningRigCost)

I don’t know what that formula is but in general terms examples are…

BTC price goes up - more miners join in

Electric cost goes up - miners shut down or move

Mining rigs are cheaper to buy - new miners join the fray.

There will be a momentum factor in the formula: eg: miners don’t go bust overnight but can run on reserves for a while, it takes a while for new mining rigs to reach market, etc

Avatar
Not a Polar Bear 1mo ago

Ps. difficulty = fn(hash rate)

5a
Milos 1mo ago 💬 1

I might be a little slow here, but why does this mean that the production cost can serve as a floor for price?

Avatar
Not a Polar Bear 1mo ago 💬 1

My thoughts on this…

If the miners have enough financial reserves - and that’s the big if - they will not sell to the market below their production cost. They will hold for as long as they need/can. Miners holding back their production will *possibly* cause a shortage of supply and stop the price taking any further: a price floor.

Avatar
Not a Polar Bear 1mo ago 💬 1

Oops. “… stop the price FALLING any further”

5a
Milos 1mo ago

That’s a good point, thanks! I guess since prices are set at the margin, fresh supply might be a very significant part of the traded volume on a given day.