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.

I'm pretty sure we'll see an influx of new miners arriving tomorrow or Tuesday since GPUs are arriving at prospecting miners' doorsteps.