Hmm, I wonder if this rally was purely market driven (ie buyers entering the market) or just cause of the increased difficulty...miners had to increase their ask rates to cover increasing costs of mining bitcoins. But then again one does wonder if the increased difficulty justifies a jump from 0.77 all the way to 1.03...so indeed this may be simple increased demand.
difficulty drives price? wat?
Can it not? I mean those miners gotta sell some portion of their bitcoins to cover the running costs of their rigs. If it does not *drive* price it certainly affects it!
No. regardless of difficulty, the number of bitcoins pumped into the market by mining remains the same. The cost of running a rig doesn't change because of difficulty, only the profitability does. Can you explain the mechanism by which an increased difficulty drives up price?
1. increased difficulty.
2. miners sell.
3.
4. price goes up.
5. profit!
You said it yourself. The profitability changes with the difficulty. So the miners would want to increase rates to combat lower profitability that comes with increased difficulty.
Rates? You mean the on average 0.01BTC fee that miners get for each block? I don't see fees affecting the price. Not yet anyway.
Perhaps you mean the ask price that miners set on the exchanges when they sell? This price is not dependent on the difficulty but rather the current market rate driven by supply and demand.
Difficulty is not the only variable determining profitability. Profitability could well go up despite an increased difficulty.
As difficulty goes up, those newcomers who want to acquire BTC are quickly cornered into having to buy them, as at face value, it's not worth dumping a bunch of money into specialized equipment for the purpose.
The answer to the question "do I buy or do I mine?" is a function of the profitability of mining, not the difficulty.
I will concede that a low profitability could affect more buyers in the market, bidding up prices.
