Quote from: Revalin on January 03, 2012, 12:00:21 AM

My chart shows that a relationship exists. I claim that price is one variable that feeds forward into difficulty, not that it's a simple linear relationship. I do not claim it's an eternal principle. Quit trying to spin it like I am.

Except that you are wrong; your chart shows the exact opposite. Do you see the huge area between the red and blue lines to the right? It tells you that the correlation is very low. Actually, worse than that, it tells you that the amount of correlation actually gets worse as one of the variables changes. Price seems to lead difficulty when difficulty is low but appears almost totally unrelated when difficulty is high. Do you see it? You've found an indicator that predicts nothing more than its own invalidity.

Quote from: Revalin on January 03, 2012, 12:00:21 AM

And you're entirely missing the point. Here's what started this whole thing:

Quote from: bitcoinBull on January 02, 2012, 03:00:02 AM

Try computing the value using difficulty as one of the variables. Prices at the moon are only justified if difficulty follows. When it doesn't, there are spikes in the price:difficulty ratio, and it stays grounded at realistic prices.

bitcoinBull thinks I should be using difficulty to compute price.

And I'm asking why he thinks it should be.

Well, obviously, he's wrong too. Wink

He's wrong because he forgot the first law of technical analysis: Your perfect indicator becomes useless as soon as you explain it to someone else. He was using difficulty as a heuristic to figure out if market moves were "legit" or not. Actually, that indicator was crap from the start, but the joke was still funny. If you look at your chart, you can see that this heuristic would have signaled "buy" all the way down from $30+ to $6.

Oh, here's a fun one. Try to look at your chart and predict what the price will be when (or before) the difficulty passes the previous peak. Will it be like $8 or $10, just enough to make rigs operationally viable with even relatively expensive power costs (ignoring capital costs)? Or will it be closer to $30, the price that (maybe sorta) sparked the massive capital investment that allowed the difficulty to attain the previous peak the first time? Or will it be more like $50 or $100 or beyond, high enough to make the last bubble seem tiny and pathetic and convince everyone's grandmother that she needs to get in on this too?

I would be really nervous about making that prediction, because the two charts show a spike and an almost square digital 0 -> 1 transition. With the right scaling factors, those two will always look like the early one caused the late one, and the price spike almost certainly really did cause the difficulty jump. But what happens next? Was difficulty primed before, like supercritical water, just waiting for a nucleation site to boil over, but now spent? Or is mining primed now, with the people that missed the first bubble now waiting for the ROI to get short enough to buy their own rigs? Or is it something else?

Try not to take this so seriously man. I wasn't trying to be insulting, I just don't think that you know the things that you think you know, or at the very least, you don't know the things you do know for the reasons you think you know them. I grew up on fractals. Check out the chaos that emerges from the incredibly simple Lotka-Voltera equations, and shudder at what equations you'd need to really model the financial, technical and psychological properties of bitcoin.