Bitcoin Price Ceiling – In Theory
A practical statistic to identify the throughput of Bitcoin’s network activity hardly exists. It is, however, possible to determine the network yield by comparing current prices to a theoretical maximum amount by limiting the downside. The evident challenge is whether current Bitcoin prices can be compared to future prices. If possible, then a theoretical maximum price can be drawn upon which a floor threshold can be applied. The issue of a Bitcoin floor has been a major debate. The floor, since the invention of the cryptocurrency, signifies vested interest and investment on the coin’s market price. The recent recovery of cryptocurrency prices reveals what volatility could do to a major digital coin. The case, however, rests on the sum of standard deviations above and below the target market prices.
Network Activity and Limits
A cryptocurrency’s target price could be defined by the median averages. However, the busier the network’s activity, the higher the price. Limits on a network’s activity may put a lid on cryptocurrency prices in the short to medium term.
The difference between the Bitcoin Blockchain’s soft limit and the hard limit is evident. Recently, a testing phase for the BTC network was witnessed after the Bitcoin Blocks filled up. The testing enabled analysts to come up with an upper limit of the maximum number of daily transactions. The daily transactions were the sum of all maximum transactions that the end users were willing to pay for. The case, however, could not be evident on a practical blockchain, therefore attracting the description of a soft limit. The practicality lacks scope due to the expense incurred to run the ecosystem.
Key is Power Consumption
Several research reports have signaled alarm about the amount of electricity consumed in Bitcoin mining rigs. The overall electric usage for global bitcoin mining operations is reported to the equal power usage of the entire Republic of Iceland. Electric power serves as a major determinant on the profitability of Bitcoin mining to miners.
The relationship between electric costs and Bitcoin prices is based upon the computation intensity required to solve the algorithm. The computation intensity dictates power consumption levels. Mining companies have shifted mining activities to geothermal producing countries, such as Ireland or China, to cut down the costs of mining. In contrast, the mining efficiency of Bitcoin machines has been improving over time.
Finally, and significantly, the net effect of production costs, however, does not reflect the price of Bitcoin.