Quote from: alz on January 14, 2014, 09:46:38 AM

I want to attempt to start some discourse on the issue of miners failing to realise that the crypto markets are like all other markets by definition governed by the relationship between supply and demand.

And anyone who running power hungry GPU rigs without enough money to cover power cost for a few months in order to give themselves the latitude to sell at the most profitable time is IMO on the fast track to going out of business, there is nowhere near enough money in mining to not sell smart if you ever want to pay for thoses R9 290X's.

Still on the upside I predict a ton of cheap second hand GPU to start hitting ebay around the end of the month(rent time) for the next few months as people who rushed in in December realise that they are never going to break even let alone make any real profit.

The way I look at it is that rent and electric run about $65 / day for my 10 rigs holding a total of 60 GPUs. My numbers are a little different than for an at-home miner because the industrial building that I'm in gets commercial rates of < 10c / kWh, but the principle scales reasonably well regardless. For round numbers you can call it $2,000 per month in expenses.

Currently I can mine LiteCoin for a fairly safe and predictable $250 per day, so that's what I spend 8 days of each month doing. That way I know that the input costs are always covered each month, and I'm not dreading the rent and electric bills arriving. This is what I call the boring bill-paying stage of the month.

Then a couple of weeks can be spent on building up stakes in what I think of as promising Tier 2 coins such as WDC, TAG etc. Coins that have been around for a timeframe measured in months and that seem to have a bright future e.g. WDC and the Scharmbeck WDC/USD facility that is in beta. This is what I call the investment part of the month.

Finally the remaining week to ten days can be used to mine promising new coins. I prefer those that have been around for a couple of weeks, are on at least one and preferably two small exchanges (just in case), and have active development plus strong communities. Recent candidates have been LOT and EAC. The thinking here is that it's possible to build up a large position very quickly due to low difficulty levels, and that those positions can be locked away with no price stress because the main goals for the month have already been met. This is what I call the speculation part of the month.

Sometimes it pays off big and much faster than expected. For example in December I spent a while mining LOT and accumulated 22 million of them. When they hit Cryptsy and the volume was there to average out at 62 Satoshis (compared to a range of 15-30 pre-listing) it was too good to ignore. That was my most profitable week of mining by a long way. Sometimes the payoff is a lot further in the future as seems to be the case with EAC. That doesn't mean that it was a bad decision, or that the coin is a loser. And even if a losing horse is backed now and again, so what? It should only be a risk position to start with.

EAC launched into a very difficult environment for alts. Even some of the bigger, more established coins have seen haircuts of 30-40%+ in their market caps over the last 2-3 weeks. Add an influx of new miners with the attention span of a goldfish, or more likely who went out on a limb buying hardware with borrowed funds that they're under immense pressure to pay back, plus a seemingly neverending parade of trashcoins with no innovation behind them whatsoever, and the rise of behemoth auto-switching auto-exchange pools that will eventually kill themselves, and you have the perfect storm of a crappy market environment.

It won't last forever. Some of the new influx of miners will make it, others will see that the days of $20 per MH/s per day are no longer there and will fold. Natural selection at work. The constant launch of trashcoins will die off as more and more of them fail in spectacular fashion like CAGE. Apologies to anyone reading this who spent their time on such a ridiculous concept, but I literally laughed my ass off when it launched on CoinedUp only to be greeted by zero buy orders. I also breathed a sigh of relief as it was the first indication that trashcoins are starting to be treated as such. There will be a period of adjustment while the wheat is separated from the chaff among the last month of launches, and that's fine. Coins that deserve to make it will, and the others will die a deserved death. I firmly believe that EAC is in the former camp.

I could go on for several screens-worth of typing about the auto-switching auto-exchange pools and the damage that they do to the markets, nevermind to their own users' profitability, but I won't. Suffice to say that they will collapse in on themselves and deservedly so. You have the biggest one needing to spend most of its time mining LTC because it's simply too big for anything else, and that of course begs the question of why you would pay someone 3% + exchange fees to mine something that you could mine yourself for far less. Those are the kinds of lazy miners who IMHO will get bored with making < $10 per MH/s per day and quit rather than making decisions for themselves. Add in certain pool admins who exit their large positions with all the grace of a rutting rhinocerous (really, if you have for example 12,000 of a coin to sell then do it in 500 coin blocks throughout the day - it's better for your users and the markets than hurr durr hit the sell button all at once) and the lazy / incompetent will disappear eventually. I also think that more and more up-and-coming coins like EAC will use the difficulty-adjustment-per-block approach that makes them a nightmare for those pools. Other deserving coins will gain so much hash rate as the trashcoins die out that the pools won't have the same effect as they do right now when the total hash rate is spread so thinly.

So when I threw the line out about not relying on a 2 week old coin to pay the electric bills, this was the thinking behind it. Treat your business like a business and don't assume that an untested new product is going to pay the bills. That's what established low risk / low reward coins should be used for. And for those who say that EAC at 200 Satoshois wasn't worth the cost to mine it, I'd love to see the math behind that. I was getting around 170,000 per day when the difficulty was in the 20s and 30s which at 200 Satoshis would be 0.34BTC per day, or $280ish at the current CoinBase sell price. For that claim to be even remotely realistic would require an electric rate of about 40-45c per kWh. Please show me another business where the "failures" return a 75% profit margin for very little effort? No really, please?

Flame suit on