Why bitcoin may never get much above $5,000 again

[iam4liberty]

WSJ has interesting article on how oil miners are mining crypto.  Since more natural gas is produced then can be either sold or vented, some oil miners are adding crypto farms to use it.  This means they are mining at near zero variable cost. This is even cheaper than use of solar and unlimited capacity can be cost effectively added at the $5k level.

https://www.wsj.com/articles/bitcoin-in-the-wilderness-11553860802
Bitcoin in the Wilderness
On a Canadian oil field, natural gas with nowhere to go powers a bitcoin-mining operation


A bitcoin-mining operation in a container on an Alberta oil field makes use of the site’s excess natural gas. AMBER BRACKEN FOR THE WALL STREET JOURNAL

[FreeLancer]

Crypto’s ability to utilize fuel with no other viable market further strengthens the concept, in my opinion, and allows for greater decentralization of the network and increased blockchain security.  I don’t see how that limits valuation.

[iam4liberty]

I don’t see how that limits valuation.

When price goes near five thousand they add more units.  This creates more bitcoins dropping the price below that level.  The price of bitcoin is thus capped.

[David in MN]

When price goes near five thousand they add more units.  This creates more bitcoins dropping the price below that level.  The price of bitcoin is thus capped.

Never talk economics to a Bitcoiner. You'll go insane pointing out problems and they'll just tout their currency arbitrage store of value whatever's next.

You can, like me, predict the price decline and still not be in the "in crowd". Well, fuck them. I made money on the up, sold into the crazy, and now look for a purpose. But I know I can't have a sane conversation with the Bitcoiners. I called the top and got haranged for it.

Let the Bitcoin people be the Bitcoin people. Not really bright about economics and investment. And they'll throw it in your face that you missed the big spike (even if you didn't) and claim victory losing money. It's a slow group.

[FreeLancer]

Bitcoins are generated at a fixed rate, though. You can’t mine more into existence at a faster rate by increasing the size of the mining pool.

[iam4liberty]

.

[FreeLancer]

Never talk economics to a Bitcoiner. You'll go insane pointing out problems and they'll just tout their currency arbitrage store of value whatever's next.

You can, like me, predict the price decline and still not be in the "in crowd". Well, fuck them. I made money on the up, sold into the crazy, and now look for a purpose. But I know I can't have a sane conversation with the Bitcoiners. I called the top and got haranged for it.

Let the Bitcoin people be the Bitcoin people. Not really bright about economics and investment. And they'll throw it in your face that you missed the big spike (even if you didn't) and claim victory losing money. It's a slow group.

[iam4liberty]

Bitcoins are generated at a fixed rate, though. You can’t mine more into existence at a faster rate by increasing the size of the mining pool.

That depends on how you view the "supply".  The true money supply includes both the absolute number of units of the currency plus its velocity (how quickly it turns over).  In bitcoin the absolute supply increases via the mining award.  There are mechanisms to control this (though these can be gamed so rate is higher than designed rate) and it is theoretically capped at 21 million.  But the velocity is not significantly capped and the transaction fee from miners is a large factor in this.

[FreeLancer]

There are mechanisms to control this (though these can be gamed so rate is higher than designed rate) and it is theoretically capped at 21 million. 

How is it gamed?

But the velocity is not significantly capped and the transaction fee from miners is a large factor in this.

What would be the expected effect of mining with free energy on velocity and fees?

[David in MN]

There is no limit to Bitcoin. If a limit ever was a threat to the Bitcoiners they would just do another fork (already done 3 [Cash, Gold, SV]). The dev team can print them out of thin air just like greenbacks. They are not a limited commodity like coal or oil or even goat poop.

This is what I get into with the Bitcoiners. My toenails are rare and unique too. And more limited than the ever forking Bitcoin. They're just not worth anything.

I remember being pumped about Bitcoin in 2011. It would reduce transfer costs below credit cards and beat the pants off Western Union. But to talk to a modern Bitcoiner you'd believe them insane. It shouldn't be usable as a currency, should have high transactional costs and long lag time, and the proper way to make money is to "hold" an "investment" that pays no dividend.

You can even point out that it tends to fork during breakouts thus guaranteeing a lower price. But in talking to Bitcoiners you'd just get some gibberish about private keys. They don't understand the underlying economics. I've lost a handful of friends because of this.

[iam4liberty]

How is it gamed?

There is a cycle time for the algorithm to adjust difficulty.  So it can be pumped like an engine with bursts of blocks creation then backing off, then bursts of blocks creation. Already six months have been taken off the life of when 21 mil is hit.

What would be the expected effect of mining with free energy on velocity and fees?

As the awards diminish and only transaction fees remain the zero variable cost producers drive out all the others.  They become a cartel able to push losses on competion.  This gives them pricing power for transaction fees.  As transaction fees increase the value drops.  This reaches a point which maximizes the amount they can receive, with rate of transactions and transaction fees set to optimal levels for them.  We have already seen retailors pull out because of transaction fees.  When your own advocate conferences stop accepting the currency because of high transaction costs you know you have a problem.  And this is still during times while there is stll an award. Think forward to time when it is transaction fees only.

https://news.bitcoin.com/miami-bitcoin-conference-stops-accepting-bitcoin-due-to-fees-and-congestion/
Miami Bitcoin Conference Stops Accepting Bitcoin Due to Fees and Congestion
Next week the popular cryptocurrency event, The North American Bitcoin Conference (TNABC) will be hosted in downtown Miami at the James L Knight Center, January 18-19. However, bitcoin proponents got some unfortunate news this week as the event organizers have announced they have stopped accepting bitcoin payments for conference tickets due to network fees and congestion.

Net, with bitcoin one holds an assett whose liquidity is directly controlled by another entity, the miners. The only way out of this is to institute inflationary mining cycle, that is reinstate significant miner awards so ineffecient miners can compete.  This again caps value but not all returns will accrue to a handful of players.

This is a fundemental flaw in the thinking of the architecture of the currency.  They did not predict zero variable cost producers.  The currency depended on assumption that there would be cost in terms of time and electricity to process transactions that would be supported by a competitive bidding market.

There is no limit to Bitcoin. If a limit ever was a threat to the Bitcoiners they would just do another fork (already done 3 [Cash, Gold, SV]). The dev team can print them out of thin air just like greenbacks. They are not a limited commodity like coal or oil or even goat poop.

Yes. There is a reason bitcoin has lost 75% of its value vs other currencies. And that is simply that it has become clear that it is not decentralized, just dispersed.

[David in MN]

While true none of that even matters. We're about 18m Bitcoin mined. About 17.5m Bitcoin Cash mined. And about 17.5m Bitcoin SV mined.

So in a currency STRICTLY limited to 21,000,000 we have 53,000,000 "Bitcoin" floating. If a publicly traded company did this with their stock they would be murdered in the market and the SEC would investigate. And if you're sitting at home believing your Bitcoin should be worth about 2.4 times more than it's trading you're correct. But it's because the dev team allowed so many spinoff coins that your market value is diluted.

I agree one could game the algorithm and the transaction fees are an issue but the whole sales pitch of a limited currency has been the driving failure.

Just work through in your head the stuff my idiot friends emailed me. "Cryptocurrency isnt a currency because it's a store of wealth and it's value comes from its limitation which isn't real and a proof of work that amounts to digging a hole in the morning and filling it in the afternoon. Work is value whether anything was actually produced just like Marx said."

It's amazing. You can publicly predict the fall of Sears, GE, and Bitcoin and people still think you're some fool wandering the forest.

[iam4liberty]

While true none of that even matters. We're about 18m Bitcoin mined. About 17.5m Bitcoin Cash mined. And about 17.5m Bitcoin SV mined.

But the forks are a symptom of the above.  For example Bitcoin Cash came about because of the transaction fee issue and disattisfaction of the China based miners.  Fundementally, the problem is the competitive mechanism for ensuring rule enforcement is an illusion.  The system is not truly decentralized.  The miners hold the key to liquidity.  As they become more and more centralized (whether this be by government subsidization like in China, miner pools like the traditionalists, or by energy companies) they hold the ability to make changes with holders essentially powerless.  It is the HOA of currencies. 

[David in MN]

But the forks are a symptom of the above.  For example Bitcoin Cash came about because of the transaction fee issue and disattisfaction of the China based miners.  Fundementally, the problem is the competitive mechanism for ensuring rule enforcement is an illusion.  The system is not truly decentralized.  The miners hold the key to liquidity.  As they become more and more centralized (whether this be by government subsidization like in China, miner pools like the traditionalists, or by energy companies) they hold the ability to make changes with holders essentially powerless.  It is the HOA of currencies.

Oh... I think I understand your argument. Your concern is that, at the end of the day, there is centralization in a few big mining pools. Somebody holds all the cards whether it's Amazon cloud computing, a Government, or the power company. No matter what it will be a case of top-down control where there is a king.

I skew much more in that the dev team has committed fraud and anyone who can look you in the eye and tell you their currency (which isn't a currency) has been capped at 21m but there are 53m floating because they forked new money probably belongs in prison.

It's a subtle difference. I'm claiming a financial crime happened and you are claiming that the incentives would prevent an honest system. Similar but different.

[iam4liberty]

Oh... I think I understand your argument. Your concern is that, at the end of the day, there is centralization in a few big mining pools. Somebody holds all the cards whether it's Amazon cloud computing, a Government, or the power company. No matter what it will be a case of top-down control where there is a king.

Yes.  Though it may be posdible to have a truly decetralized fiat currency.  But this approach isnt it.

I skew much more in that the dev team has committed fraud and anyone who can look you in the eye and tell you their currency (which isn't a currency) has been capped at 21m but there are 53m floating because they forked new money probably belongs in prison.

It's a subtle difference. I'm claiming a financial crime happened and you are claiming that the incentives would prevent an honest system. Similar but different.

Well their argument will be that with every fork the holders at tgat time received the new currency too.  So theoretically, if everyone agreed in the switch (census) then it would have been a fair solution.

[David in MN]

Mmm... Well there's 2 Davids responding. The much younger David thought that the dev team acting in clear violation of Satoshi's (and I think I know who he is) white paper was acting in bad faith of the Bitcoin community. Older wiser David thinks it was just a financial crime and the gimmicks of who got what fork and when were VERY suspect.

But I take the broader point. When I got in I could mine Bitcoin on my phone. Now the power is consolodating and us early adopters have largely checked out.

[FreeLancer]

So what do you guys think about the Lightning Network transaction layer?

[David in MN]

So what do you guys think about the Lightning Network transaction layer?

It's a scam. Like everything in crypto it's a scam. But this one is particularly bad. On its face it seems like a good idea because we've all gone out with friends and after a long night of dinner, a baseball game, drinks, and general good times it consolodates all transactions.

But... It also allows a big user to trade with no contact to the Blockchain. Why not just start a massive lightning network and name it the Federal Reserve?

Think of it this way... The sexy new currency isn't a currency; can't be used as a currency; isn't limited as designed due to forks; and now ignores the ledger. It's so laughably bad I couldn't have imagined a worse outcome.

[iam4liberty]

But it does bring up a point, is the ledger approach to solving the double spend problem a good solution?  It seems unsustainable as it requires unrealistic distribution of processing.  As it becomes more concentrated a 51% attack is all but assured.  And the costs of maintaining the ever growing ledger makes concentration virtually inevitable.What happened to bitcoin gold seems likely to happen to the others.

So non-ledger based alternatives may have more promise. 

[iam4liberty]

Speak of the devil.  Reportedly an entity made a $100 million play into bitcoin today and the price bounced off $5,000 like a brick wall had been hit.  Suggests large scale automated sells at $5k.



As side note, investors are hoping it wasn't Maduro as they definitely dont want the political ramifications of that.

[iam4liberty]

But it does bring up a point, is the ledger approach to solving the double spend problem a good solution?  It seems unsustainable as it requires unrealistic distribution of processing.  As it becomes more concentrated a 51% attack is all but assured.  And the costs of maintaining the ever growing ledger makes concentration virtually inevitable.What happened to bitcoin gold seems likely to happen to the others.

So non-ledger based alternatives may have more promise.

FYI.  Massive concentration happening among Bitcoin miners as independents shutter operations.  China miners are near 50% mark as many now are outsourcing mining to Chinese farms rather than controlling own hardware.

https://www.bloomberg.com/news/articles/2020-01-31/bitcoin-s-network-operations-are-controlled-by-five-companies
Bitcoin’s Network Operations Are Controlled by Five Companies

Bitcoin’s infrastructure is more centralized than ever before --raising alarms about the security and viability of what is championed as a decentralized network.

Transactions on the Bitcoin network are processed by so-called miners -- mostly companies operating vast arrays of computers. As competition increased, many smaller participants became unprofitable and dropped out, while the larger operations have entered into various partnership agreements. As a result, five mining entities -- all of them based in China -- control 49.9% of all computing power on the network, the highest concentration of mining power ever, a new analysis from TokenAnalyst found.
...
Problem is, a miner with more than 50% of hash power can potentially wreck havoc on the network, raising the likelihood of double-counted coins, stopped payments and stalled transactions.”

[FreeLancer]

The defeatist doom and gloom is actually way worse. 

Chinese miners appear to have been in control of more than 65% of the hashing power for months, already. 

[troy10a]

iam4liberty, and now it costs 11,600 USD. What do you think about it?

[iam4liberty]

iam4liberty, and now it costs 11,600 USD. What do you think about it?

So far it has continued in its approximately three year bear market.  It seems to be following the classic 'pump and dump' pattern.  The miners and other large holders have been able to entice some new people into it (though not to previous level) by limiting sales and aggressive marketing.  Then they dump and it returns back to the $5,000 channel.  So, until the final burst comes, one can profit in short term by buying under $5,000 and selling when it gets out of the channel.  How long this will last is anyone's speculation.