In my other thread someone suggested that since mining is a way many people first get into Bitcoin that an increase in the price of mining each coin could increase Bitcoin market price. I think its definitely a plausible theory. The steady flow of new investors who would normally buy equipment are instead going to buy Bitcoins directly as long as the market price is less than the price per Bitcoin from hardware manufacturers.
There are two problems with this idea.
- First, the demand for bitcoins is the same whether the person chooses to buy them or mine them.
- Second, the cost of mining will never exceed the value of the mined bitcoins (at least in a rational world). This discontinuity breaks any dependency of price on cost of production.
The idea that the cost of mining determines the value of the bitcoins is essentially the
Labor Theory of Value. This theory doesn't apply to bitcoins because the supply of new bitcoins is unaffected by the cost of mining. For example, the relative values of apples and oranges depend on the cost to grow them because if increasing costs cut into profits of one, then farmers will grow the other instead. The varying supplies create an equilibrium around the cost of production. However, it doesn't matter how much or how little it costs to mine bitcoins. The supply of new bitcoins is predetermined and unaffected by production costs.
Finally, you can't overlook the fact that Bitcoins aren't consumed. The supply of bitcoins at this point is overwhelmingly determined by the bitcoins that are already in circulation.