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To mine or not to mine? The Bitcoin Mining Paradox

Insight & Analysis

The aim of this paper is to study the profitability of Bitcoin mining, using the real options theory. The main factors driving the marginal Bitcoin mining profitability are the Bitcoin price, the hashrate, the predictability of mining difficulty and the hardware efficiency. We propose a real options model that simulates the fundamental mining reward and measures the likelihood of breakeven on initial investment and explores also the relationship between the Bitcoin price and the mining difficulty in different economic cycles. Some of our findings questions the rationality of miner’s decisions and attempts to measure their impact on the economics of Bitcoin. Our results show that after the 2017 bubble Bitcoin, miners had an irrational behavior and did not adjust their strategy based on the price levels.

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General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial in- strument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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