BITCOIN & GOLD average cost and Market trend
With latest news spreading FUD, price dropping and lot of uncertainty in the market, i want to share an idea that i had long time ago. After a thorough analyse i hope that i made my point with this post.
GOLD
If we compare BITCOIN with GOLD, we see that are bought by same kind of people.
This way we may understand better BITCOIN price behaviour.
Lot of the people that bought BITCOIN now, are maybe many of those who bought GOLD not long time ago. We can then assume, that both BITCOIN and GOLD are bought by same kind of investors.
It seems that BITCOIN and GOLD appears to be as anti-establishment currencies. That means, the "one which stands in opposition to the conventional social, political, and economic principles of a society". See detailed term here: Anti-establishment - Wikipedia
When people bought GOLD, they mainly did that because it is opposite of fiat. The same happens with BITCOIN.
The next similarity is the mining operation to get them (even the mining process is very different, the result is the same) and they are both a finite amounts.
Next step is to compare the markets and how they behave.
The old rule with supply and demand is still there.
When is more supply than demand then the market become saturated and that means
Supply > Demand.
That means that is nobody left to buy. So, that means the the price will drop.
A special note:
GOLD production cost has been set to a production cost of $1200 (the average cost to produce 1 ounce of gold is at $1200). In this case, if the price drops below that average cost it will stop the mining and some of them will go bankrupt. Not being able to make profit and increasing losses will affect every mining company.
That will cause panic in the market and if it continues to drop, also some of the mining companies are bankrupt and gone, then it will mean that less mining it will mean less supply and therefore more demand. So, the price will go up again.
After the price will go above the production cost then more investors will come and so, more money in the market. The price will still go up -> the average person will be back again in the market making the price to go even higher. And so on...
Human psychology push the price up and also down in the markets. The markets are used by humans (even with their own control or with bots that are made also by a human). The cycle repeats itself over the time.
Market forces will always bring equilibrium and adjustments in the price.
GOLD example:
The top price was in 2011, then when falling down, it hit its production cost of $1200 twice in 2013 then in 2014-2015 it dropped below its production cost (at this moment lot of mining companies were out of business). After that, it finally made a bottom there and started to go up again.
The final conclusion regarding GOLD example is that, knowing the production cost of a certain asset, will help the investor to understand better that asset.
This way, you can say you know where is a bottom (floor).
BITCOIN
Elitefixtures.com had a research regarding average costs based on average electricity rates for 115 countries - sourced from government data - source: How Much Does It Cost to Mine Bitcoin Around the World? | Investopedia
Having their research as a base, we can see that the BITCOIN production cost depends on which country you are.
Few examples starting with the most expensive ones:
South Korea = $26,170
Bahrain = $16,773
Germany = $14,275
United Kingdom = $8,402
Hong Kong = $7,930
South Africa = $5,948
United States = $4,758
China = $3,172
Saudi Arabia = $3,172
Venezuela = $531
Bitcoin currently trades essentially at the break-even cost of mining a bitcoin, currently at $8,038 based on a mining model developed by our data science team,” said Tom Lee managing partner at Fundstrat Global Advisors
Source (Published: May 11, 2018): Here’s how much it costs to mine a single bitcoin in your country - MarketWatch
I think the "real" bitcoin mining price is around $3 - 4.000. You can't take in considerations places where prices are higher than this price because it will not be reasonable to mine. Why would you do that? Because some people made some statistics? I don't think that.
This is for statistic purpose not for "a healthy mining perspective". People to mine at that price... hmm, maybe as we knew the moment when were waiting for the "neighbor" to shut it down first. Only time will tell regarding that.
So, the developed model from link above (for mining price calculation) that is kept secure it may have other reasons beside that one, because they are respectable people.
Here is an example that leads also to mining price of $4,000 / BITCOIN:
Image source (Article published: Thu, 15 March 2018)
Coming back to BITCOIN chart, the things said above are important for my next statements.
This is BITCOIN Daily price where i put 2 lines, RED = $8,000 and ORANGE = $4,000.
That means one of the "right mining price" it should be the floor price for BITCOIN. In that area we should see future support as a reference for the bottom (floor).
Depending on what you believe, regarding the mining cost is, you can take that one as reference. Or, if you disagree with what i say, you can say why in the comments.
This detail, can be a major thing for you as a trader or as an investor when seing price falling and have no reference in this moments. Also, as we saw with GOLD, a market can go below its production cost.
Often, markets don't bottom until they go below its production cost. That means, we need to see a lot of that competition going out of business in order for the supply to chill down and make room for more demand to come.
Regarding BITCOIN, right now is still a lot of supply. We must also take in consideration that there are a lot of other cryptocurrencies outhere. A lot of them will need to go out of business to lower the supply and we can see a real bottom in crypto market and Bitcoin.
Please feel free to comment what you think about that.
Cheers
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