Quote from: geek-trader on July 11, 2011, 03:57:50 AM

My point is, after you've bought the hardware, the incentive to "get out" is low. Maybe people running several multi card rigs will cut back, but the "hobbyist" miner like myself is here to stay.

Now, the incentive for new people to get in DOES get lower as the difficulty gets higher. Why spend hundreds on hardware that will never get paid back?

This. Ignoring future price speculation, there are really three stages of profitability for each person out there -
1) BTC price is much lower than electricity costs. Correct move is to sell their hardware.
2) BTC price is above electricity costs, below the level required to pay back the cost of hardware. Possible moves are to sell hardware, or to mine and hope for the price appreciation. Correct move is to NOT buy new hardware.
3) BTC is above both electricity and hardware costs. Correct move is to buy new hardware.

The point is that when price-difficulty relationship reaches stage 2) for a person, they will no longer be considering new hardware purchases - so they will not increase the difficulty. Stages 1) and 3) are obvious, the difficulty would shrink and grow, respectively. But 2) is the interesting case, since it could allow us to hit a stable point that is not profitable in the near term.