Miners have a serious impact on the price of bitcoin and other cryptocurrencies. These people are experienced in the game, they have been in it for a long time and therefore now have a lot of capitol behind them. understanding the psychology of mining bitcoin and getting ahead is a key to understanding the price waves that we experience.
Miners are acutely aware of the dynamics of profitability between mining and holding bitcoin. they have experienced times when buying and holding bitcoin would have been more profitable than mining, they have also experienced times when mining has been the easiest and most effective way to get bitcoin quickly and at below-market rates. Mining has an advantage of collecting somewhat anonymous funds and so the balance here is dependent on legislation and regulation by the banking system. Buying and holding bitcoin is most scary and often costly when the price is volatile. This lead to a cycle where mining operations are commonly started during times of volatility, after a peak. Buying and holding by smart money happen most in low volatility. Miners, when they have spare bitcoin, which they often do, in times of low volatility, with increasing "mining difficulty" levels are increasingly tempted to hold there bitcoin rather than sell and buy more miners.
Buying both miners and bitcoin require free funds, with mining requiring more time to maintain. Due to legislation and buyers privacy fears, it is easy to sell bitcoin for paper cash and more difficult to sell for wired money. It is nearly impossible to buy miners with paper cash because they are manufactured internationally. It is also not possible to pay power bills with paper cash and difficult to pay with bitcoin. This leads to a tendency for some miners to accumulate paper cash.
If miners are strict they will avoid paper cash but then they will either accumulate bitcoin or wired digital funds from sales on exchanges. Wired funds they will definitely have to pay tax on in that financial year. So the cycle of financial years tax filings in high mining countries has an impact.
When volatility is high there will be a further tendency to want to leave the funds on the exchanges because of withdrawal costs and because of lost opportunity costs, if they choose to also trade there bitcoin. The strategy would simply be mean reversion, which will make good money in high volatility but over time will reduce the volatility through its own practice.
Through these processes, you can see that there is a lot of logic to the patterns of the bitcoin charts in the past, in particular, the last two booms. Whether this cycle continues to be a strong force is not as clear.
Miners are acutely aware of the dynamics of profitability between mining and holding bitcoin. they have experienced times when buying and holding bitcoin would have been more profitable than mining, they have also experienced times when mining has been the easiest and most effective way to get bitcoin quickly and at below-market rates. Mining has an advantage of collecting somewhat anonymous funds and so the balance here is dependent on legislation and regulation by the banking system. Buying and holding bitcoin is most scary and often costly when the price is volatile. This lead to a cycle where mining operations are commonly started during times of volatility, after a peak. Buying and holding by smart money happen most in low volatility. Miners, when they have spare bitcoin, which they often do, in times of low volatility, with increasing "mining difficulty" levels are increasingly tempted to hold there bitcoin rather than sell and buy more miners.
Buying both miners and bitcoin require free funds, with mining requiring more time to maintain. Due to legislation and buyers privacy fears, it is easy to sell bitcoin for paper cash and more difficult to sell for wired money. It is nearly impossible to buy miners with paper cash because they are manufactured internationally. It is also not possible to pay power bills with paper cash and difficult to pay with bitcoin. This leads to a tendency for some miners to accumulate paper cash.
If miners are strict they will avoid paper cash but then they will either accumulate bitcoin or wired digital funds from sales on exchanges. Wired funds they will definitely have to pay tax on in that financial year. So the cycle of financial years tax filings in high mining countries has an impact.
When volatility is high there will be a further tendency to want to leave the funds on the exchanges because of withdrawal costs and because of lost opportunity costs, if they choose to also trade there bitcoin. The strategy would simply be mean reversion, which will make good money in high volatility but over time will reduce the volatility through its own practice.
Through these processes, you can see that there is a lot of logic to the patterns of the bitcoin charts in the past, in particular, the last two booms. Whether this cycle continues to be a strong force is not as clear.
