Quote from: bitcoinBull on June 05, 2011, 12:07:03 AM

Quote from: bitcoinBull on May 26, 2011, 05:24:19 AM

What will happen next?

Scenario 1) Sideways price movement coupled with the increasing difficulty means that the ratio declines to 1:1, e.g. with a price of $10.00 when there is an estimated difficulty of 1,000,000.

Scenario 2) Rapidly increasing difficulty is met with equal increase in price, keeping the ratio at 2:1. For example, the price breaks $10 when difficulty estimate surpasses 500,000. Bitcoin is at $20.00 by the time the difficulty estimate is at 1,000,000.

Scenario 3) Another pop in price pushes the ratio back up from 2:1 to 3:1. At an estimated difficulty of 500,000 the price goes to $15. It could come back down as low as $10 or even lower like $7.50, while difficulty increases to 1,000,000, sinking the ratio to 1:1 or 0.75:1.

These are the optimistic scenarios. Pessimistic scenarios, like a drop in price and/or a rapidly slowing difficulty growth, don't seem likely. As in the chart, the record low price/difficulty ratio was around 0.75 at the beginning of April.

A quick update. Scenario 3 is has happened.

At a projected difficulty of ~600,000, the price popped over $18 so we're over the ratio of 3:1.

The question now is how high will this go in the very near-term? With the critical mass and media explosion, we could see a return to the historic ratio highs from back in November, nearing 6:1. That would be a doubling from $18 to $36.

We'll see what happens over the coming weekdays when the banks open to start processing more transfers.

This is a fantastic time to be mining. We need more miners, and fast. Hopefully the vendors can deliver more GPUs soon. I see the difficulty as a lagging indicator, so we need a matching rise in difficulty to support the rising price. That is absolutely critical to avoid large corrections and instill confidence in bitcoin.

Looks like the second part of Scenario 3 is in full swing. With an estimated 800,000+ on the way soon, and price at 15 as of now, we are on the way to much lower ratios. Still have a way to go, however!