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For example, today on CEX.IO I can buy 1 GH/S for 0.08 BTC. From my understanding, a change in difficulty is imminent and will increase roughly by 20% (http://bitcoinwisdom.com/bitcoin/difficulty).
Will the price for GH/S decline by roughly 18.3% (1/1.2)?
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The price of CEX.IO's GH/S asset is based on the total future expected payout of a Gh/s of mining hardware, factoring in management fees and the time value of money. The current price already factors in future difficulty increases, as these are predictable and expected events. The price should not move significantly when the difficulty adjusts, as the occurrence and magnitude of the adjustments are not a surprise to any informed participant in the market.
So you mean that the market is entirely rational. But how do you explain the drop in price from 0.2 to 0.08 (-60%) in just 45 days? Were the buyers back then less rational? I don't think the available/expected information changed much over that period (except for a rocketing BTC price). – chris – 2013-11-16T12:36:50.983
CEX.IO's GH/S is essentially a dividend producing asset, as it can be deployed on GHash.io to produce mining revenue. As a GH/S pays out, it makes sense for the price of the asset to fall accordingly. In your example, the buyers at 0.2 BTC would be ahead if more than 0.12 BTC was paid out during the time they held the GH/S. – Dust – 2013-11-16T21:11:09.860
Very interesting. But wouldn't be also correct to say that the main reason for GH/S' price decline is the increase in its supply? As comparison, it's like a company that has only so much income to pay out (per period) as dividend and keeps on issuing new stock. The stock price would decline and so would its yield in nominal terms, punishing existing shareholders. At the end I'm trying to determine at which price (if any) it makes sense to buy CEX.IO's GH/S... – chris – 2013-11-17T02:25:33.013