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Periodicity of Volatility in the Bitcoin Markets and Risk Management
Hey Everyone,
Today I'd like to talk about the periodicity of volatility in the bitcoin markets and how it might affect how you place stop orders.
First, it's long been noted that volatility in the equity markets form a U shape throughout the day. Volatility during the market open and close are the highest with a pronounced lull in the middle of the day (some half-jokingly say due to traders taking their lunch). Similarly, intraweek volatility also shows a U shape for many asset classes with Mon and Fri being the most volatile and Wed being the least though this effect is not as pronounced as the intraday effect. Outside of these short term cyclical effects, some traders have noticed an October Effect (a number of market crashes happened in Oct so there may be some psychological effect here) and a January Effect (people dump losing positions for tax reasons in Dec and buy back into the market in Jan) but these effects are related to returns, not volatility, so we will not focus on them.
So it begs the question, do the bitcoin markets display periodicity in return volatility too? Some traders on TradingView have found that large price moves often happen during and slightly before the New York and London open and closes. If that's the case and if your trading strategies have a timeframe longer than a single day, it might help your risk management processes to factor out this persistent and periodic noisiness in returns during those times. For example, if you believe bitcoin will go up over the next few days but you also want some downside protection in case you are wrong so you place a trailing stop 3% below the current price, you don't want random noise due to these New York and London "kill zones" to stop you out of your position when your trading idea over a longer timeframe was sound and the general market trend agrees with you. Rather it would be better to have a dynamic stop which periodically adjusts for the extra volatility during these kill zones by going proportionally wider below the then current price during those specific times. The longer the timeframe of your trading strategy and the closer you want to put your stop next to the current price, the more important this concept becomes. If your timeframe is longer than a week, it might also help to apply this concept to intraweek periodicity (e.g. weekends are less volatile than weekdays).
Outside of managing risk in trading the underlying, once options markets develop in bitcoin, understanding the periodicity of volatility will help options market makers know when to widen their quotes and by how much, which can directly lead to less adverse selection and subsequently greater profits.
References:
Cheers,
Kevin & Team Buttercoin
Hope you enjoyed this week's post. If you did please up-vote / like / share
. And if youre a bitcoin trader, come visit us at Buttercoin for free bitcoin trading.
Today I'd like to talk about the periodicity of volatility in the bitcoin markets and how it might affect how you place stop orders.
First, it's long been noted that volatility in the equity markets form a U shape throughout the day. Volatility during the market open and close are the highest with a pronounced lull in the middle of the day (some half-jokingly say due to traders taking their lunch). Similarly, intraweek volatility also shows a U shape for many asset classes with Mon and Fri being the most volatile and Wed being the least though this effect is not as pronounced as the intraday effect. Outside of these short term cyclical effects, some traders have noticed an October Effect (a number of market crashes happened in Oct so there may be some psychological effect here) and a January Effect (people dump losing positions for tax reasons in Dec and buy back into the market in Jan) but these effects are related to returns, not volatility, so we will not focus on them.
So it begs the question, do the bitcoin markets display periodicity in return volatility too? Some traders on TradingView have found that large price moves often happen during and slightly before the New York and London open and closes. If that's the case and if your trading strategies have a timeframe longer than a single day, it might help your risk management processes to factor out this persistent and periodic noisiness in returns during those times. For example, if you believe bitcoin will go up over the next few days but you also want some downside protection in case you are wrong so you place a trailing stop 3% below the current price, you don't want random noise due to these New York and London "kill zones" to stop you out of your position when your trading idea over a longer timeframe was sound and the general market trend agrees with you. Rather it would be better to have a dynamic stop which periodically adjusts for the extra volatility during these kill zones by going proportionally wider below the then current price during those specific times. The longer the timeframe of your trading strategy and the closer you want to put your stop next to the current price, the more important this concept becomes. If your timeframe is longer than a week, it might also help to apply this concept to intraweek periodicity (e.g. weekends are less volatile than weekdays).
Outside of managing risk in trading the underlying, once options markets develop in bitcoin, understanding the periodicity of volatility will help options market makers know when to widen their quotes and by how much, which can directly lead to less adverse selection and subsequently greater profits.
References:
- Intraday volatility in FX and equity markets: http://public.econ.duke.edu/~boller/Published_Papers/joef_97.pdf
- Bitcoin Kill Zones: https://www.tradingview.com/v/zZYED4fH/
Cheers,
Kevin & Team Buttercoin
Hope you enjoyed this week's post. If you did please up-vote / like / share
. And if youre a bitcoin trader, come visit us at Buttercoin for free bitcoin trading.We're happy to announce Buttercoin's new referral program.
Were paying you, Buttercoin users, to spread the word about Buttercoin instead of paying advertising companies.
How it works...
http://3.bp.blogspot.com/-IkSWmFguoa4/VLVqPa8ExgI/AAAAAAAAAcM/PSptfnjShQ4/s1600/Referral-2.png
Were paying you, Buttercoin users, to spread the word about Buttercoin instead of paying advertising companies.
How it works...
- You send a friend your referral link, which you can find on the referral page.
- Your friend clicks your referral link and signs up for a buttercoin account.
- Your friend buys Bitcoin by adding USD to their Buttercoin account via bank transfer.
- You and your friend each receive $20 in your accounts.
http://3.bp.blogspot.com/-IkSWmFguoa4/VLVqPa8ExgI/AAAAAAAAAcM/PSptfnjShQ4/s1600/Referral-2.png
Hi all,
With the market being very active and Bitstamp being down, if you're in the US and looking to buy / sell / trade, try us at buttercoin.com.
We currently have no trading fees, narrow spreads, good depth, and fast customer support. Our KYC process for onboarding normally takes less than 24 hours. You can deposit (2-3 business days) and withdraw (1 business day) through US bank transfers (ACH). We also offer wire transfers (1 day deposit; same day withdrawal) for business customers and individuals who go through an additional account review process.
Our trading engine was designed for high throughput order matching and currently achieves sub-millisecond execution times. If you prefer to trade through our API, that's available as well. We also have an OTC desk for our business customers with large blocks to trade (50-10,000 BTC).
For bitcoin storage, we use a multi-sig, multi-level cold storage system. Currently more than 99.5% of the bitcoins are held in cold storage. In addition, we regularly hire penetration testers to find vulnerabilities on our system and also run a white hat bug bounty program.
Try Buttercoin and share feedback, tell us what we can improve and what you love about Buttercoin.
Cheers,
Team Buttercoin
With the market being very active and Bitstamp being down, if you're in the US and looking to buy / sell / trade, try us at buttercoin.com.
We currently have no trading fees, narrow spreads, good depth, and fast customer support. Our KYC process for onboarding normally takes less than 24 hours. You can deposit (2-3 business days) and withdraw (1 business day) through US bank transfers (ACH). We also offer wire transfers (1 day deposit; same day withdrawal) for business customers and individuals who go through an additional account review process.
Our trading engine was designed for high throughput order matching and currently achieves sub-millisecond execution times. If you prefer to trade through our API, that's available as well. We also have an OTC desk for our business customers with large blocks to trade (50-10,000 BTC).
For bitcoin storage, we use a multi-sig, multi-level cold storage system. Currently more than 99.5% of the bitcoins are held in cold storage. In addition, we regularly hire penetration testers to find vulnerabilities on our system and also run a white hat bug bounty program.
Try Buttercoin and share feedback, tell us what we can improve and what you love about Buttercoin.
Cheers,
Team Buttercoin
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.
Interesting insight. Does this money come from new adopters ?
There is 3.6k~ additional BTC that is mined every day, however all of this is not sold. For example anyone who has purchased a cloud mining contract will likely not sell their newly mined bitcoin, also many people will probably not sell their bitcoin above what it costs to cover their electric costs
If we've got 3.6K surplus each day, any hoarding will be sold later. It doesn't make any difference if they are sold right away or hoarded. It's an average number. If all surplus is hoarded today, we need twice demand tomorrow.
Yeah it shouldn't matter if the coins are hoarded since that means the monetary base is larger but the market cap is the same so the price per coin should be lower anyway.
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day.
Interesting insight. Does this money come from new adopters ?
Yeah, either new adopters or old adopters buying more bitcoin with their fiat.
How the US Marshal Bitcoin Auction Affects the Market (Buttercoin Weekly)
Hi, Im Kevin Zhou, Economist at Buttercoin a Silicon Valley / Wall Street backed Bitcoin Marketplace (sign up here). Every week we take a look at whats happening in Bitcoin and share it, heres the latest.
This week markets traded between $365/BTC and $385/BTC. Volatility has remained low with the exception of a sharp but minor drop on 12/4 from $375/BTC to $365/BTC. Trading volumes continue to decrease.
News this week:
This week, I'd like to delve into the second US Marshal bitcoin auction and how it affects the market. Markets should only react to new, unexpected information. The expectation that these Silk Road seized coins would be auctioned off by the government had already formed to some degree on the day the coins were seized and further confirmed by the first US Marshal bitcoin auction. Thus the event of the second auction, itself, should have little market impact because it was, with near certainty, expected by the market.
There are broadly two types of bidders in the auction. Those who bid under market price (short and long-term value seekers) and those who bid above market (long-term investors). If an underbidder wins, they could either sell the bitcoin into the open market to lock in some profit or hold onto the bitcoins for a longer period of time. Both of these behaviors are reasonable. However, if an overbidder wins, the only reasonable behavior is to hold. This is because the only reason someone would bid above the current spot price is because they are seeking to take a sizable long position in bitcoin while incurring less slippage than if that position was bought in the open market. There would be no reason for someone to bid above market price only to win the auction and immediately it sell back to the market at a loss.
Therefore, if an overbidder wins, we can be reasonably sure that those coins will not be dumped onto the market and create selling pressure. If opinions about the market are distributed between pessimistic on one side and optimistic on the other, you would expect that some people belong to the pessimistic side and some others to belong to the optimistic side and most people are in the middle. If everyone was on the price-pessimistic side, some of them would just sell into the market until both sides become roughly balanced. So of the 11 bidders, we can expect some of them to be underbidders and some of them to be overbidders. This is expectation is amplified by the fact that some of the 11 bidders represent syndicates composed of many smaller bidders who all likely have differing sentiments about bitcoin price. A lopsided 9-2 split is more likely to happen purely by chance than a 900-200 by chance. In light of that, I expect most of the auctioned coins to be won at above market price and for those coins not be be dumped for some significant time.
Up until now, we've considered how auction winner behavior affects post-auction price. How about the effect of expected winner behavior on pre-auction price? If we expect most of the auction to close above market, does that lead normal market participants to buy and pump up the price knowing that there will likely be someone who bought at a higher price than them, who will not sell below that price? Intuitively that might make sense but I would argue that it can't be the case. Overbidders by definition are willing to pay more than the rest of the market so the reciprocal is also true: the market is only willing to pay up to a point less than the overbidders' price point. The market sees the overbidder as overpaying in a sort of short-term winner's curse even if the overbidder ends up being right in the long run.
Therefore, I think we can reasonably assume:
The last thing we haven't considered is that some bidders could trade on the open market leading up to the auction to influence the market price and subsequently the auction closing prices. This is worth exploring further.
Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin.com
Hope you enjoyed this week's Bitcoin recap. If you did please up-vote / like / share. And if youre a bitcoin trader, come visit us at Buttercoin for free bitcoin trading.
This week markets traded between $365/BTC and $385/BTC. Volatility has remained low with the exception of a sharp but minor drop on 12/4 from $375/BTC to $365/BTC. Trading volumes continue to decrease.
News this week:
- Second US Marshal bitcoin auction closes: http://[Suspicious link removed]/1vxswoF
- 50k BTC were auctioned off.
- 11 bidders present.
- Tim Draper wins 2000 of them.
- In an Australian Senate Economics Committee inquiry, Mastercard argues for stronger regulation of bitcoin: http://[Suspicious link removed]/1vFPRJP
- This was shortly followed by a video: http://[Suspicious link removed]/1z0puy9
- Coinjar relocates to the UK due to unfavorable bitcoin tax environment in Australia: http://[Suspicious link removed]/1ubRj2f
- Rep. Steve Stockman introduces bill to impose a moratorium on new legislation regarding cryptocurrency for 5 years: http://[Suspicious link removed]/1I5hK2T
- Also calls for bitcoin to be treated like a currency.
- For tax purposes, the creation or purchase of bitcoin is not immediately taxable based on "fair market value" but only taxable after converting to fiat. Only then is net gain/loss calculated.
- 3 top Dutch banks experiment with blockchain technology: http://[Suspicious link removed]/1w6CQce
- Venezuelan congressman Guido Ochoa buys HashFast in bankruptcy sale: http://[Suspicious link removed]/1G9c2JI
- Blockchain.info's random number generator was compromised for a brief moment yesterday resulting in unsecure private keys being generated on behalf of customers: http://[Suspicious link removed]/1wUbOGO
- Losses total around $100k.
- BTCT and owner/operator burnside fined $68k by SEC for violating securities laws: http://[Suspicious link removed]/1vFPXkT
- A good explanation of block withholding attacks on open pools: http://[Suspicious link removed]/1w6CTon
- Open pools are intrinsically vulnerable to block withholding attacks by solo miners and other pools.
- This can be somewhat mitigated by giving a disproportionally larger reward to members which find the actual block in a pool but it cannot be completely solved for open pools.
This week, I'd like to delve into the second US Marshal bitcoin auction and how it affects the market. Markets should only react to new, unexpected information. The expectation that these Silk Road seized coins would be auctioned off by the government had already formed to some degree on the day the coins were seized and further confirmed by the first US Marshal bitcoin auction. Thus the event of the second auction, itself, should have little market impact because it was, with near certainty, expected by the market.
There are broadly two types of bidders in the auction. Those who bid under market price (short and long-term value seekers) and those who bid above market (long-term investors). If an underbidder wins, they could either sell the bitcoin into the open market to lock in some profit or hold onto the bitcoins for a longer period of time. Both of these behaviors are reasonable. However, if an overbidder wins, the only reasonable behavior is to hold. This is because the only reason someone would bid above the current spot price is because they are seeking to take a sizable long position in bitcoin while incurring less slippage than if that position was bought in the open market. There would be no reason for someone to bid above market price only to win the auction and immediately it sell back to the market at a loss.
Therefore, if an overbidder wins, we can be reasonably sure that those coins will not be dumped onto the market and create selling pressure. If opinions about the market are distributed between pessimistic on one side and optimistic on the other, you would expect that some people belong to the pessimistic side and some others to belong to the optimistic side and most people are in the middle. If everyone was on the price-pessimistic side, some of them would just sell into the market until both sides become roughly balanced. So of the 11 bidders, we can expect some of them to be underbidders and some of them to be overbidders. This is expectation is amplified by the fact that some of the 11 bidders represent syndicates composed of many smaller bidders who all likely have differing sentiments about bitcoin price. A lopsided 9-2 split is more likely to happen purely by chance than a 900-200 by chance. In light of that, I expect most of the auctioned coins to be won at above market price and for those coins not be be dumped for some significant time.
Up until now, we've considered how auction winner behavior affects post-auction price. How about the effect of expected winner behavior on pre-auction price? If we expect most of the auction to close above market, does that lead normal market participants to buy and pump up the price knowing that there will likely be someone who bought at a higher price than them, who will not sell below that price? Intuitively that might make sense but I would argue that it can't be the case. Overbidders by definition are willing to pay more than the rest of the market so the reciprocal is also true: the market is only willing to pay up to a point less than the overbidders' price point. The market sees the overbidder as overpaying in a sort of short-term winner's curse even if the overbidder ends up being right in the long run.
Therefore, I think we can reasonably assume:
- The market expected the government to auction off those coins and continues to expect that the rest of the seized coins will be auctioned off at some time in the future.
- A significant majority of the auctioned coins sold at a premium to market price.
- Those coins won above market price will not be dumped in the near future.
- Market price is a better reflection of short-term "true value" than the price at which the auction closes.
The last thing we haven't considered is that some bidders could trade on the open market leading up to the auction to influence the market price and subsequently the auction closing prices. This is worth exploring further.
Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin.com
Hope you enjoyed this week's Bitcoin recap. If you did please up-vote / like / share
. And if youre a bitcoin trader, come visit us at Buttercoin for free bitcoin trading.Hi, Im Kevin Zhou, Economist at Buttercoin (sign up here) a Silicon Valley / Wall Street backed Bitcoin Marketplace. Every week we take a look at whats happening in Bitcoin and share it, heres the latest.
Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem. This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.
This week markets traded between $360/BTC and $395/BTC. Trading volumes have been moderate and volatility has been relatively low.
News this week:
Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%. Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.
The previously steep climb in mining difficulty over the past 22 months has started to flatten out. The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013). Moreover, three of the last four difficulty adjustments have been below +3%. Compare this to last October where we saw difficulty increases of over 25%-40% each time. This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners. It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin. It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.
This also affects the bitcoin markets. Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down. Compare this to October of last year when blocks were generated at close to 7 minutes per block. That means now the network generates about 62 fewer blocks per day than last October. This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.
In addition to directly less selling pressure, there are circular effects which are bullish on price. For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses. Miners are more likely to hoard when they believe other miners are hoarding. In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day. This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years. In light of all this, I am strongly bullish.
Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin
Hope you enjoyed this weeks Bitcoin Recap. If you did please up-vote / like / share. And if youre a bitcoin trader, come visit us at Buttercoin for free Bitcoin trading.
Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem. This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.
This week markets traded between $360/BTC and $395/BTC. Trading volumes have been moderate and volatility has been relatively low.
News this week:
- Western Union sees backlash after claiming copyright infringement on bitcoin spoof ad: http://www.coindesk.com/western-union-faces-backlash-removal-spoof-bitcoin-ad/.
- Kraken was selected to aid in the mtgox liquidation: https://www.cryptocoinsnews.com/kraken-selected-mtgox-investigation/.
- Liquidation will likely be quick and both gox creditors and Kraken stand to benefit.
- Gox creditors get some portion of their money back while Kraken gets an influx of new customers.
- Approximately 70% of bitcoins have not moved in 6 months: http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/.
- Switzerland will treat bitcoin like a currency: https://yacuna.com/blog/bitcoin-currency-switzerland/.
- Dutch official says bitcoin likely not liable for VAT: http://www.coindesk.com/dutch-official-bitcoin-transactions-probably-liable-vat/.
- Australian Senate holds first hearing into cryptocurrencies: https://www.youtube.com/watch?v=6rGHSpC5uNk.
Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%. Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.
The previously steep climb in mining difficulty over the past 22 months has started to flatten out. The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013). Moreover, three of the last four difficulty adjustments have been below +3%. Compare this to last October where we saw difficulty increases of over 25%-40% each time. This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners. It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin. It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.
This also affects the bitcoin markets. Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down. Compare this to October of last year when blocks were generated at close to 7 minutes per block. That means now the network generates about 62 fewer blocks per day than last October. This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.
In addition to directly less selling pressure, there are circular effects which are bullish on price. For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses. Miners are more likely to hoard when they believe other miners are hoarding. In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day. This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years. In light of all this, I am strongly bullish.
Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin
Hope you enjoyed this weeks Bitcoin Recap. If you did please up-vote / like / share
. And if youre a bitcoin trader, come visit us at Buttercoin for free Bitcoin trading. That means now the network generates about 62 more blocks per day than last October.
i think you made a mistake with that sentence... shouldnt it read: That means now the network generates about 62 less blocks per day than last October?
The WU "backlash" is just them defending their trademark...any company needs to do that.
otherwise nice text.. but i dont think lower difficulty is bullish
in general i think atm is more money invested in bitcoin services instead of bitcoin directly. long-term this is very bullish, but i dont know what will happen short term
we'll see
Thanks for the correction!
Hi, Im Kevin Zhou, Economist at Buttercoin (sign up here) a Silicon Valley / Wall Street backed Bitcoin Marketplace. Every week we take a look at whats happening in Bitcoin and share it, heres the latest.
Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem. This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.
This week markets traded between $360/BTC and $395/BTC. Trading volumes have been moderate and volatility has been relatively low.
News this week:
Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%. Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.
The previously steep climb in mining difficulty over the past 22 months has started to flatten out. The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013). Moreover, three of the last four difficulty adjustments have been below +3%. Compare this to last October where we saw difficulty increases of over 25%-40% each time. This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners. It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin. It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.
This also affects the bitcoin markets. Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down. Compare this to October of last year when blocks were generated at close to 7 minutes per block. That means now the network generates about 62 fewer blocks per day than last October. This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.
In addition to directly less selling pressure, there are circular effects which are bullish on price. For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses. Miners are more likely to hoard when they believe other miners are hoarding. In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day. This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years. In light of all this, I am strongly bullish.
Cheers,
Kevin & Team Buttercoin
Bitcoin Trading Made Easy | Buttercoin
Hope you enjoyed this weeks Bitcoin Recap. If you did please up-vote / like / share. And if youre a bitcoin trader, come visit us at Buttercoin for free Bitcoin trading.
Every week we start by taking an overview of the market, followed by recent and notable news in the bitcoin space and finally a closer look at some part of the bitcoin ecosystem. This week we focus on bitcoin difficulty slowing its ascent and its effect on the markets.
This week markets traded between $360/BTC and $395/BTC. Trading volumes have been moderate and volatility has been relatively low.
News this week:
- Western Union sees backlash after claiming copyright infringement on bitcoin spoof ad: http://www.coindesk.com/western-union-faces-backlash-removal-spoof-bitcoin-ad/.
- Kraken was selected to aid in the mtgox liquidation: https://www.cryptocoinsnews.com/kraken-selected-mtgox-investigation/.
- Liquidation will likely be quick and both gox creditors and Kraken stand to benefit.
- Gox creditors get some portion of their money back while Kraken gets an influx of new customers.
- Approximately 70% of bitcoins have not moved in 6 months: http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/.
- Switzerland will treat bitcoin like a currency: https://yacuna.com/blog/bitcoin-currency-switzerland/.
- Dutch official says bitcoin likely not liable for VAT: http://www.coindesk.com/dutch-official-bitcoin-transactions-probably-liable-vat/.
- Australian Senate holds first hearing into cryptocurrencies: https://www.youtube.com/watch?v=6rGHSpC5uNk.
Since early August of this year, bitcoin difficulty has doubled while the price has dropped around 20%. Miner profit margins are thus being squeezed on one side by the increased rarity of finding a block as well as the decreased nominal value of the reward.
The previously steep climb in mining difficulty over the past 22 months has started to flatten out. The next difficulty adjustment will happen in about 2 days and is expected to be +.86% (the lowest since January 2013). Moreover, three of the last four difficulty adjustments have been below +3%. Compare this to last October where we saw difficulty increases of over 25%-40% each time. This slowdown shows that the amount (in hashing power terms) of mining hardware being added onto the network by yet profitable miners are nearing equilibrium with the amount of mining hardware being taken off the network by now unprofitable miners. It suggests that ASICs are possibly hitting a saturation point in the network where for a lot of miners the marginal cost of producing a bitcoin is now equal to or above the price of a bitcoin. It also implies the further centralization of mining power to larger miners with greater efficiencies of scale.
This also affects the bitcoin markets. Since a flatter difficulty adjustment schedule implies blocks are being generated at close to 10 minutes per block the number of bitcoins entering the economy every day is slowing down. Compare this to October of last year when blocks were generated at close to 7 minutes per block. That means now the network generates about 62 fewer blocks per day than last October. This is equivalent to 1550 BTC less influx in bitcoin supply per day which means significantly less selling pressure in the market.
In addition to directly less selling pressure, there are circular effects which are bullish on price. For example, miners are more likely to sell when they think other miners are also selling so as to get in front of each other and not to get stuck with a worse price and possibly become unable to continue with operations due to constant operating expenses. Miners are more likely to hoard when they believe other miners are hoarding. In other words, all else equal (e.g. consumer adoption growth), a steeper difficulty climb implies more selling by miners and a flatter difficulty climb implies more hoarding by miners.
It takes about $1.33m of new fiat money coming into the bitcoin economy to buy up the total bitcoin supply increase of about 3600 BTC per day. This is the lowest dollar amount it's been in a year and the lowest BTC amount it's been in almost 2 years. In light of all this, I am strongly bullish.
Cheers,
Kevin & Team Buttercoin
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