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>And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor. Well no sane/rational entity would want to sell
by gph 14y ago
>And regardless, there's absolutely no conceptual reason cost of production would represent any kind of floor.
Well no sane/rational entity would want to sell for less than cost of production because that would entail a loss (let's keep this simple and say there aren't any ulterior reasons one would receive gains/benefits from selling at below cost).
Since competition drives the price towards the cost of production it's reasonable to consider it or a price just above it as the floor.
Edit: I guess I should state, I'm not trying to say there is a 'hard' floor in which the price can't possibly drop below. I'm more saying it's a relative benchmark for where the lowest price would tend to settle given a healthy bitcoin market/environment.
- dllthomas 14y agoA rational entity would absolutely sell at a loss. They would not acquire with the goal of selling at a loss, but once they already have the thing what they paid to get it is a sunk cost, which a sane or rational agent ignores in making future decisions. If bitcoins were overproduced, say during a bubble, they could well remain low long-term - there is no particular pressure driving them up.
- gph 14y ago>If bitcoins were overproduced, say during a bubble, they could well remain low long-term - there is no particular pressure driving them up. Well if the cost to produce them was higher than the price, people would simply stop mining. Perhaps my understanding of bitcoins isn't correct, but I thought that if there were no miners then transactions would stop being processed and the currency would basically stop working and die. I know right now bitcoins are still being created/produced by miners, but at some point in the future that will stop happening and miners will be compensated through transaction fees as a percentage of each transaction. At that point if price of bitcoins falls below the cost to mine we likely will see people stop mining and transactions ceasing until the price rises enough for it to be worthwhile. Of course bitcoin is a bit special in that there are a lot of fans of it that will likely be completely willing to accept a loss to keep the currency going. As we all know humans don't act as perfect economic-minded rationalists. But I still think the cost of production is a good bottom metric to keep an eye on. If the price falls below that we will know that the currency is in rather dire straits and being artificially propped up by those with an interest in keeping it going.