How Low Can You Go, Bitcoin?

Wow... I know a lot of people like to point at charts, talk about the cycle of investor emotions, etc. but I generally don't follow those too much. If a technology is good, it will (or at least should) eventually rise to the top, short of a catastrophic failure of marketing. Bitcoin is such a technology in my book, so I don't think it will ever fail and go to zero. The time for that was back in late 2011, and most people were saying, "See, BTC is over -- it was a con from the start. Let's move on." Those that sold at $20+ were patting themselves on the back and those that didn't were feeling sad. Except, there were others accumulating coins at a rapid pace, and just three years later if they're still holding they've reaped nearly 100X returns.

But that's all history now. What's going on today with the BTC price? I was surprised to see us go much below $300, and I figured $250 would be the likely bottom. Now we're sub-$200 again, and some are predicting an even bigger fall yet to come. I'm still skeptical, because for a huge panic to occur you would need the biggest supporters of BTC to start dumping. If they didn't dump at $500+, why would they dump now? We're still heading down, however, and until the trend changes those who like to draw lines on charts and talk about SMAs will continue to make guesses on the eventual bottom, and some of the guesses are bound to be correct.

I wrote in the post two days ago that CEX.io halted their cloud mining, and that was when the price was still at $265. At sub-$200 prices things are even worse. Consider this: ZeusMiner just sent out a newsletter about their latest "no limit bid" on the new Antminer S5. This is supposed to be one of the newest and most efficient SHA256 ASICs around, capable of 1155GH/s with a power draw of 550W -- so basically just over a 2:1 ratio. But how much would you pay for such a miner in today's market?

At the current price and difficulty, you would net about $30 per month (depending on the cost of your power). Think about that: it could take well over a year (500 days) to pay for an ASIC that only costs $500 for 1.15 TH/s. Ouch. The interesting thing is that the prices of ASICs have dropped a lot with the drop in BTC pricing, so really the manufacturers were making a killing and they've had to cut into their profit margins because obviously no one would want to pay $1000 for a miner that could take years to -- or potentially never -- reach ROI.

Of course I don't expect BTC prices to continue down indefinitely. The very reason we have the term "bottom" is because at some point the institutional day traders and investors expect it to rebound. The SNP500 is often cited as a great example of the cycle of investor emotions. Twice it reached ~1500 before dropping to half that value, but now it's at an all-time high of ~2000. Bitcoin could very well mimic that sort of behavior, just on a vastly accelerated time scale.

And here's the thing to remember: Bitcoin is not a stock, bond, or even a commodity (though it bears the closest resemblance at times to the latter). When you try to predict BTC price movements based on tools used for stocks, you will encounter problems. And even when you apply the best technical analysis possible, you are still guessing. I always love seeing TA posts on BTC, as they end up presenting three possibilities: up, down, or stay the same. Rarely do they actually state unequivocally the direction they expect BTC to move, but a week later when there's a big change, rest assured they had that possibility covered the week before: "We were right! BTC went way down!"

Fundamentally, then, nothing has changed. BTC is the same technology today as it was last week, last month, and (mostly -- a few updates have undoubtedly occurred) last year. If it was a killer idea five years ago, it remains a killer idea, and nothing has yet been able to usurp BTC as the top cryptocurrency. The market cap is now down to $2.5 billion, sure, but that will change. The same people profiting from the drop in prices will eventually read their tea leaves and decide it's time to be bullish, and we'll see the inevitable reversal.

When will that happen? No idea, but I can't see any way BTC prices get much lower short of another major hack. $150 is a likely bottom, and double digits seems ludicrous to even consider. In a few years, I still plan to be holding onto the BTC I have, and by then I expect to be back into four digits. In the meantime, enjoy the roller coaster ride.

Adventures in Alternative Cryptocurrency: Frozencoin (FZ)

Last week I got curious about Hashco.ws and did some testing, but as I was investigating whether or not the Hashcows multipool was better than mining LTC (verdict still pending), I got sidetracked by Quark. My testing of Quark quickly confirmed what others have said: it's mined out. 246 million QRK are now out in the wild, and going forward there will only be 1 million QRK per year. That seems short-sighted, but the people that held them until last week likely made a ton of money! Then in the midst of looking at Quark, I found a new coin called Frozen.

Frozen uses the same algorithm as Quark, which makes it more resistant to GPU and ASIC mining (for now at least), and since I have about 20 largely idle CPUs around I thought it would be interesting to mine some FZ and see if I could make any money off of it. The short story: absolutely! The long story? I'm not quite so sure where FZ is going in the coming months.

It's basically Quark 2.0, with only 7.777 million coins (instead of 250 million), plus a guaranteed 1 FZ reward per block minimum (~1051920 FZ per year after the initial mining, corresponding to one block worth 1 FZ per 30 seconds). What that means is that like QRK, when FZ is done, it's not really done... and I'm not sure that's a good thing, as it appears FZ will also be mined out in around six months? But if the value is high enough perhaps the 1 million FZ per year perpetually will be useful.

There's a site for Frozen, but it's in the process of being migrated to a new server (supposedly), which makes trading the coin a bit more difficult. (Update: Trading Forum is back!) The mining difficulty has spiked up ten-fold since I started, which means it's no longer giving me a 5X return relative to LTC mining, but I did get about 10LTC per day in trades several days last week. Thankfully, I also sold the LTC when it was going for $30, but we'll be back to $30+ again -- some day soon, hopefully, but if not then it will still happen.

Okay, back to Frozen. Let's say you want to mine it, since you have some rigs with GPUs and you could do FZ on the CPU still without really impacting performance (though it would use more power). The steps for getting Frozen mining going are pretty simple.

1. Download the CPU miner and/or Smolen's GPU Smelter. Quad-core i7 will do around 800KHash/sec, while smelter will take 10% of coins to give to the developer. Smelter does 1400-1500KHash/sec on 7950/7970, 2000-2500KHash/sec on 5850/5870 and 6950/6970. (Apparently the developer doesn't have any GCN hardware, so it's not optimized for AMD's newer cards, at least not yet.)
   
2. Download the Frozen-QT client, run it once and exit, and then edit Frozen.conf in:
   C:\Users\[Username]\AppData\Roaming\Frozen (mine is below for reference, or included in the chain snapshot).
   
3. Now run Frozen-QT again and it should update the block chain and you're ready. (I've got a snap-shot of the chain as of 12/16/2013 available to help get you going faster). The conf file I provided has most of the settings needed to solo mine, including setting rpcthreads (the number of clients that can connect) to 40.
   
4. Start mining, with either solo or pooled mining. CPU clients use the following command for the pool, replacing the address with your FZ address from the client:
   minerd64_sse4 -a quark -t 8 -o http://fz.mine-pool.net:9372 -u FTKf7WumfNRJA94frNsSJiudFJhvcGYH3t -p x
   For solo CPU mining, you can run:
   minerd64_sse4 -a quark -t 8 -o http://[Your IP]:18450 -u user -p pass
   
5. For GPU mining, it's not possible to use a pool, so you have to do solo with smelter (again, swap in your own FZ address):
   smelter -o http://[Your IP]:18450 -u user -p pass -w 64 -g 2 -i 100 -a FA5Q97XuGzszbpNgGUjUWveTPGiJ9NnzR5
   
6. You might need to open up ports 18450/18451 in your firewall, or at least tell the firewall to let traffic through when it prompts (if you're on Windows).
   

And that's pretty much it; you can sit back and mine Frozencoin. But there's the question: how much is Frozen worth? It's not on any exchanges yet, so you have to trade with people manually. You also need to figure out how much you're willing to accept. I've seen a lot sold at 1 LTC per 1000 FZ, but that may be too low -- or FZ could collapse and no one would want it, but that can happen potentially to any cryptocurrency. If FZ ends up equaling QRK (Quarkcoin), it could be worth $0.10 per coin. Since there are only 7,777,777 FZ (plus ~1 million per year), it should be worth quite a bit more in theory. Time will tell. In the meantime, the difficulty is still reasonably low, so you could mine a few thousand in a week and hold them for the future. Enjoy!

Donations in FZ: F8sGbVmiepUAmVQA3foaW2t4jP2a8sHYKo

Frozen.conf:

rpcuser=user
rpcpassword=pass
rpcport=18450
port=18451
testnet=0
rpcallowip=127.0.0.1
rpcallowip=192.168.1.*
rpcthreads=40
listen=1
daemon=1
server=1
gen=0
addnode=192.241.200.142
addnode=71.84.113.165
addnode=75.142.224.140
addnode=75.166.71.201
addnode=84.249.109.128
addnode=98.214.94.227
addnode=98.242.20.240
addnode=87.119.221.84
addnode=78.128.6.26
addnode=5.9.44.164
addnode=84.238.225.19
addnode=86.100.125.187
addnode=176.215.214.89
addnode=95.85.21.252
addnode=106.187.41.6
addnode=50.201.141.6
addnode=71.84.113.165
addnode=75.142.224.140
addnode=75.166.71.201
addnode=84.249.109.128
addnode=98.214.94.227
addnode=98.242.20.240
addnode=137.117.216.239
addnode=137.117.218.209
addnode=139.190.255.127
addnode=162.242.223.73
addnode=174.100.51.46
addnode=194.68.104.18
addnode=218.74.37.218
addnode=222.126.164.66