martes, 7 de octubre de 2014

Mundo Bitcoin: Why the bearwhale is a good thing for bitcoin after all

By Victor Hernandez

Now that it is abundantly clear that the reason for the latest bitcoin crash was a single user selling tens of thousands of coins at the same time, it's time to analyze objectively the implications of the events for the price of bitcoin. Because, honestly, the so-called "bearwhale" seems to be a good thing for bitcoin after all.

The "bearwhale" is nothing more than a single user selling a larger than usual amount of bitcoins. The effect of such an event is obvious: a steep drop in price, as supply of coins outpaces demand.

But there's something nobody has noticed yet. The coins sold by the bearwhale now have a monetary value that will contribute to keeping the overall bitcoin price from falling too low.

In the case of last weekend's bearwhale, close to 30,000 coins were sold at 300 Dollars each.

Unless the owner of the coins wanted to lose a lot of money, he must have sold them at a price far below the price he paid for them.

Thus we have two possible hypothetical scenarios:

A. This was a miner who has been hoarding coins for a while and finally decided to sell the coins. Either because he figured it would take a long time for bitcoin prices to rise enough to pay for his bills, or because he just plain wanted to get out of mining because it's getting too difficult and not profitable enough.

B. This is a bitcoin user who had been buying coins since 2011 or 2012, when the price for bitcoin was under 15 dollars. A 3,000 dollar investment in bitcoin back then would yield around 30,000 coins worth 9 million dollars today. It's a sweet deal even at 300 dollars per coin. Why did the user sold his coins? Difficult to say. Could've been a user who panicked because of the continuous price and decided to get out before his investment shrinked even more. Of course, that's difficult to believe. Long time hoarders don't sell on a panic like that.

In either scenario we have coins that were acquired for zero dollars (mining) or for a cheap price (2011-2012 prices). But now those coins were bought for 300 dollars. This means the coins' value is no longer a super-low value.

Most likely, whoever bought the coins at 300 dollars each will not want to sell them for aything less than 300 dollars unless that person wants to lose money.

Which means the price for those coins will have a floor of about 300 dollars.

How's that a good news? Because the floor for the coins will no longer be less than 15 dollars or the price for mining them. The floor will be 300 dollars.

By now you're probably thinking "wait, but there surely are many more ultra-cheap coins from the early days of bitcoin and there are about 3,600 coins created every day. 30,000 coins at 300 Dollars can't possibly make a difference in the price."

Ah, but here's the thing: mining prices are constantly rising, so the new coins are not free. They do have a price floor that's constantly rising due to mining expenses. That's one of the deflationary features of bitcoin.

As per the old coins, it is true that there are millions of coins from the early days being hoarded. Those coins include Satoshi Nakamoto's coins, the Winklevoss's coins, Hal Finney's coins, etc. And they will keep bitcoin prices from raising too much because the price floor for those coins is too low.


Every time those coins get sold, their price floor rises, making the overall price floor for bitcoin higher even if the immediate price for bitcoin seems to be falling.

What's great about this is in a couple of years the price floor for bitcoin will probably be higher then the current price floor. And as it cointinues rising, soon those who buy bitcoins now at 300 dollars won't have to worry about about future price crashes, as the crash floor will probably be above 300 dollars.

This is just plain supply and demand economics. Even with rampant speculation in Chinese exchanges, as more old coins get sold, the overall price floor for bitcoin will rise.

PS: By the way. All that talk from the trolls about how people had lost faith and confidence in bitcoin and how investors had moved on to altcoins, etc, etc, turned out to be, as usual, just a lot of bullshit. And Paul Krugman's talk about bitcoin being a libertarian scam also turned out to be grade-A, organic, hand-picked bovine excrement. In the end, what caused bitcoin to crash was some guy wanting to get rid of a lot of ultra-cheap coins, thus significantly reducing the price for bitcoin in the short term, but rising its price floor in the long term.

UPDATE: According to the data providided by a Reddit user, mining bitcoin with a 1.6 Terahash miner has an electricity cost of about 431 dollars per coin. That means miners won't want to sell or mine new bitcoins for less than that price. Which means in the future the price floor won't go too far below that level.

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