Valuation of Crypto-Currency Mining Operations

TL;DR

This paper introduces a novel net present value method for valuing crypto-mining operations using cryptocurrencies as the underlying asset, addressing valuation challenges caused by high coin appreciation rates.

Contribution

It proposes a new valuation approach tailored for crypto projects, enabling better comparison of investment strategies like HODL versus mining.

Findings

Mining profitability is highly sensitive to coin appreciation rates.

The NPV method effectively compares different crypto investment strategies.

Sensitivity analysis highlights key factors influencing mining profitability.

Abstract

Traditionally, the Net Present Value method is 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 HODL vs. mining, we also provide a sensitivity analysis of profitability