In short: no speculative positions.
We’ve read an interesting article on Quartz about the possibility that the “gold rush” of bitcoin miners has effectively come to an end:
(…) one area of the bitcoin economy is maturing much faster than the others, to the point where profits are increasingly harder to come by and consolidation and diversification are already happening: the mining of bitcoins. For years, bitcoins were mined largely by a far-flung network of desktop hobbyists. But increasingly, a smaller group of companies building large data centers set up for the sole task of mining new bitcoins.
Perhaps the biggest squeeze on smaller miners has been the drop in the price of bitcoins. After surging from $99 to $1,147 late last year, bitcoin has fallen back to $344 this week, a decline of 70% from the peak. One big reason for the decline is thought to be the race itself to mine bitcoins: As miners sold their bitcoin rewards to finance new equipment, those coins added to the overall supply in the market.
There’s an adage that people make more money in gold rushes by selling pickaxes than by mining for gold. In the world of bitcoin, it seems, you make money by doing both. And, increasingly, by acquiring other companies that are doing the same.
It seems that various aspects of the bitcoin economy are developing very much in the way one would expect a market for a new product or service to evolve. After a period of initial competition, specialization and consolidation emerge, economies of scale kick in and the market is dominated by a rather limited number of players. With the ubiquity of the Internet, this all gets a twist in that some of the dominant players are actually pools of resources of smaller entities (in this case: pools of smaller miners are big players).
The really interesting aspect of all this for bitcoin investors is the effect mining might have on the price. Generally, a steady inflow of bitcoins into the market delivered by miners immediately selling their spoils might be a drag on the price. The extent to which this kind of bitcoin supply actually affects the market mechanism is not crystal clear. Simply put, the price is an effect of demand and supply so in determining the drivers in the bitcoin market we have to look at both.
For now, let’s take a look at the charts.
On BitStamp, we saw yet another day of appreciation yesterday. The move up was also on volume higher than on the day before. Does this mean that the short-term picture is now bullish? Not necessarily.