Valuation of Cryptocurrency Mining Operations

Jose Berengueres

Abstract


Traditionally, the Net Present Value method has been used to compare diverging investment strategies. However, valuating crypto-projects with fiat-based currency is confusing due to extreme coin appreciation rates as compared to fiat interest rates. Here, we provide a net present value method based on using crypto-coin as the underlying asset. Using this method, we compare buy-and-hold versus mine-and-hold; we also provide a sensitivity analysis of profitability.


Keywords


Valuation; Net present Value; NPV; discounted cash flows

Full Text:

PDF OPEN REVIEW

References


Courtois, N. T., Grajek, M., Naik, R. “The unreasonable fundamental incertitudes behind bitcoin mining.” arXiv (preprint server) (2013) https://arxiv.org/abs/1310.7935.

Kroll, J. A., Davey, I. C., Felten, E. W. “The economics of Bitcoin mining, or Bitcoin in the presence of adversaries.” Proceedings of WEIS. 2013 (2013) https://www.econinfosec.org/archive/weis2013/papers/KrollDaveyFeltenWEIS2013.pdf.

Laszka, A., Johnson, B., Grossklags, J. “When bitcoin mining pools run dry.” International Conference on Financial Cryptography and Data Security. Springer, Berlin, Heidelberg, 2015.

No Author. “Ethereum Network Hashrate Chart and Graph.” CoinWarz.(accessed 15 August 2018) https://www.coinwarz.com/network-hashrate-charts/ethereum-network-hashrate-chart.

O’Dwyer, K. J., Malone, D. “Bitcoin mining and its energy footprint.” ISSC 2014 / CIICT 2014, Limerick, June 26–27 280-285 (2014) http://karlodwyer.com/publications/pdf/bitcoin_KJOD_2014.pdf.

Remer, D. S., Nieto, A. P. “A compendium and comparison of 25 project evaluation techniques. Part 1: Net present value and rate of return methods.” International Journal of Production Economics 42.1 79-96 (1995) https://www.doi.org/10.1016/0925-5273(95)00104-2.

Ross, S. A. “Uses, abuses, and alternatives to the net-present-value rule.” Financial management 24.3 96-102 (1995) https://www.jstor.org/stable/3665561.

Saltelli, A., Chan, K., Scott, E. M., eds. Sensitivity analysis. Vol. 1. New York: Wiley, 2000. 18-19.

Thorp, E. O. “Portfolio choice and the Kelly criterion.” In The Kelly Capital Growth Investment Criterion Theory and Practice, World Scientific Publishing Co. 81-90 (2011) https://EconPapers.repec.org/RePEc:wsi:wschap:9789814293501_0007.




DOI: https://doi.org/10.5195/ledger.2018.123

Refbacks

  • There are currently no refbacks.




Copyright (c) 2018 Jose Berengueres

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.