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Why you should not invest in mining endeavour? The efficiency of BTC mining under current market conditions

Author

Listed:
  • Małgorzata Jabłczyńska

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

  • Krzysztof Kosc

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

  • Przemysław Ryś

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

  • Robert Ślepaczuk

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

  • Paweł Sakowski

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

  • Grzegorz Zakrzewski

    (Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group)

Abstract

The main aim of this paper is to analyse the efficiency of BTC mining under current market conditions. After thorough analysis of initial assumptions concerning the (1) price of mining machine and its effective amortization period, (2) difficulty and hash rate of BTC network, (3) BTC transaction fees and (4) energy costs, we have found that currently BTC mining is not profitable, except for some rare cases. The main reason of this phenomenon is the fast and unpredictable increase of difficulty of BTC network over time which results in decreasing participation of our mining machines in BTC network hash rate. The research is augmented with detailed sensitivity analysis of mining efficiency to initial parameters assumptions, which allows to observe that the conditions for BTC mining to be efficient and profitable are very challenging to meet.

Suggested Citation

  • Małgorzata Jabłczyńska & Krzysztof Kosc & Przemysław Ryś & Robert Ślepaczuk & Paweł Sakowski & Grzegorz Zakrzewski, 2018. "Why you should not invest in mining endeavour? The efficiency of BTC mining under current market conditions," Working Papers 2018-18, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2018-18
    as

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    File URL: https://www.wne.uw.edu.pl/index.php/download_file/4530/
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Adam Hayes, 2018. "Bitcoin price and its marginal cost of production: support for a fundamental value," Papers 1805.07610, arXiv.org.
    2. Adam Hayes, 2015. "A Cost of Production Model for Bitcoin," Working Papers 1505, New School for Social Research, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cryptocurrencies; mining; bitcoin; blockchain; investment strategy; efficiency of financial markets; new asset class; VC and PE;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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