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.
Highlights
In the current cryptocurrency mining boom,[1, 2] two opposed views exist on profitability of mining operations
The Net Coin Value (NCV) is the sum of the coin flow that a mining operation will produce over n days of mining, minus all expenses valued at the price of the coin on the day of the purchase of the equipment: n
The purple curve shows the NCV for the same rig, but assuming linear network capacity growth that corresponds to a linear interpolation of the past 12 months provided by Coinwarz,[9] in this case the equation used is
Summary
In the current cryptocurrency mining boom,[1, 2] two opposed views exist on profitability of mining operations. The NCV is the sum of the coin flow that a mining operation will produce over n days of mining, minus all expenses valued at the price of the coin on the day of the purchase of the equipment: n. We consider P0 to be constant during all the mining period for simplicity and this is a source of error (if the coin value P appreciates the model underestimates the NCV.). It follows that the payback time happens on the first day of mining that satisfies cost of miner. The time to double the initial investment is the first day i that satisfies NCV(i) ≥ 2 (cost of miner)/P0
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