[ZS] Bitcoin @ $1000 - unlikely any time soon

Gary Mulder flyingkiwiguy at gmail.com
Tue Aug 14 06:25:01 PDT 2012


Some pondering:

I've been thinking about the recent super-bull market in BTC. Let's assume
for a moment that BTC goes to $1000. That would mean with around 10M BTC
issued, the Bitcoin economy would be the $10B in size. That is a
very sizeable and noticeable event that governments would likely start to
take notice and act, similar to Wikileaks, Piratebay, etc. Remember,
Bitcoins compete directly against central banks' monopoly as a
currency issuer, which is the most powerful financial tool all governments
use manipulate their fiat currency and economies.

Any major governmental reaction and the resulting negative publicity and
loss of confidence would likely knock back the price of
BTC significantly. Therefore it is unlikely under the present governmental
and financial conditions that we'll ever see BTC at $1000, or at least not
for long. It is much more likely that the for either dying lack of interest
in Bitcoin or way too much of the wrong interest the price of BTC will
hover a bit above the marginal cost to mine BTC at best.

So what is the marginal cost of mining Bitcoin? At 50BTC per block mined it
was estimated to be $3-4 about 6 months ago, depending on the
local electricity costs of running GPUs. The difficulty has increased by
about 30%, and the rate of Bitcoin mining will halve to 25BTC/block in
about November 2012. I don't think fees make up any significant amount of
mining profits, yet. The major destabilising unknown is the marginal cost
of mining using FPGAs. It would be very interesting to determine the ratio
of GPU to FPGA miners. Let's however assume the worst case GPU costing, and
we get a marginal cost of around $8 to mine a BTC. This doesn't
include the capital costs of buying, maintaining, and housing the GPUs or
FPGAs. It looks like people are paying a 50% premium at the current price
of $12/BTC.

Your thoughts?

Gary

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