Cryptocurrencies: To trade or To Mine

Business Analytics
Final Group Paper
Overview
In real life scenario, the case has been inspired by John Orta, a team member who is
currently investing in cryptocurrencies and other team members, Luis Perez Armas and
Shereene Mou Tham, who are curious about mining. Therefore, the main objective of this case
is to analyze whether we should invest in crypto coins or mine them.

History of Bitcoin
Pre-bitcoin years began in 1998. Though the concept was formed at that stage, it was
not fully developed yet. In 2008, the real beginning of Bitcoin happened when a certain Mr.
Nakamoto posted Bitcoin to a mailing list discussion on cryptocurrency. From then on, the
breakthrough of Bitcoin has shown developments each passing year. The Bitcoin software was
made available to the public in 2009. A year later, Bitcoin was valued for the first time and in
another year rival cryptocurrencies started emerging.

How Mining Works

It is all about solving the puzzle and putting together the chain out of these puzzles
solved. Blocks are added to the blockchain each time a mathematical puzzle is solved by a
certain miner. A puzzle is solved by guessing a random number, passing it through hash
functions that will start with a pre-established number of zeroes. Once solved, the miner
announces it in the network and that signals other miners to stop working on that specific block
that has already been solved. The miner who solved the puzzle is then rewarded in a form of a
bitcoin. As of January 2018, a bitcoin reward is equivalent to 12.5 or approximately $200,000.
According to Jan Lansky, a cryptocurrency is a system that meets six conditions:
1. The system does not require a central authority, distributed achieve consensus on its
state.
2. The system keeps an overview of cryptocurrency units and their ownership.
3. The system defines whether new cryptocurrency units can be created. If new
cryptocurrency units can be created, the system defines the circumstances of their origin
and how to determine the ownership of these new units.
4. Ownership of cryptocurrency units can be proved exclusively cryptographically.
5. The system allows transactions to be performed in which ownership of the cryptographic
units is changed. A transaction statement can only be issued by an entity proving the
current ownership of these units.
6. If two different instructions for changing the ownership of the same cryptographic units
are simultaneously entered, the system performs at most one of them.

Case Analysis
Today everybody is talking about bitcoin price and cryptocurrencies, people speak about
their electronic wallets and the amazing benefits of blockchain, how this new source of money

CRYPTOCURRENCIES: TO TRADE OR TO MINE 2

will eventually change the world and specially the banking sector, you constantly hear terms
such as hash rate, ICOs, block time, block reward and many others, and for sure when you
hear stories about how 10.000 bitcoins that in 2011 that worth only few dollar (only able to buy
a regular pizza) and that today worth more than 100 million dollars, it drives out your curiosity,
on the back of your head you start feeling and small tickling, a voice starts telling you that you
should invest in cryptocurrencies that if everybody is making money then why you shouldn’t
and if everybody does it then it cannot be that difficult right? But wrong in fact it is very complex
and to make profits in this business you should have a strategy that is able to cope the huge
amount of risks and uncertainty that this business involves, and this is the key point on which
analytics can help. But this is it lets just imagine that you are interested on investing, you have
a total amount of 10 thousand dollars and you want to invest in cryptocurrencies, what should
be considered? Just to start you must take an initial decision, weather you decide to trade
cryptocurrencies, or you decide to mine them. If you are going to trade them, then the question
is which coin? You currently have more than 1500 on the market. If you decide to mine them
then you need to consider even more variables, which GPU would you buy? On which country
you want to mine? What coins would you mine? What is the time horizon for your investment?
What is the expected WACC? Does such business produce value in reality? To answer all
these questions, we will use various advanced analytic methods.

Trade or mine?
Do we trade cryptocoins or we mine them?
What is the best GPU to mine cryptocoins?
Which cryptocoin to mine?
The initial question is weather to trade cryptocurrencies or to mine them, to answer this
question the best tool available is to set up a decision tree, using as a variable for decision the
profit from mining cryptocurrencies in different scenarios of price, and compare it with the same
revenues coming from trade on the same scenarios.
Since it is almost impossible to test all the 1500 coins available in the market, we
selected five of the currently most popular, with different maturities: Ethereum ETH, Ethereum
Classic ETC, BitcoinGold, Monero and Zcash, all of them have different price ranges, and
different difficulties to mine. We gathered the current prices and set up 5 different scenarios:
High (+100%), Good (+20%), Reg (+0%, or the current price), low (-50%) and crash (complete
loss of value) Table 1. We also compiled the data of daily production of the six most popular
GPUs for mining the 5 selected coins Table 2.
Coins Normal (Current) High (+100%) Good (+20%) low (-50%)
Ethereum $ 665.40 $ 1,330.80 $ 798.48 $ 332.70
Zcash $ 298.91 $ 597.82 $ 358.69 $ 149.46
EthereumClassic $ 22.14 $ 44.28 $ 26.57 $ 11.07
BitcoinGold $ 86.44 $ 172.88 $ 103.73 $ 43.22
Monero $ 275.63 $ 551.26 $ 330.76 $ 137.82

Table 1. Price of coins on different scenarios

CRYPTOCURRENCIES: TO TRADE OR TO MINE 3

 1050Ti 1060 1070 1070Ti 1080 1080Ti
Ethereum 0.0011 0.0018 0.0025 0.0025 0.0019 0.0029
Zcash 0.0023 0.0036 0.0054 0.0059 0.0069 0.0084
EthereumClassic 0.0296 0.048 0.0639 0.065 0.0497 0.078
BitcoinGold 0.0081 0.0122 0.0194 0.0212 0.0249 0.0281
Monero 0.0019 0.0028 0.0041 0.0041 0.0037 0.0053

Table 2. Daily production of GPUs of different coins

For the case, we are assuming an initial investment on GPUs of 2000 dollars, and
calculating the resulting revenues for the production of cryptocurrencies of each one of the
selected GPUs and coins, at the different pricing scenarios, we are also calculating the costs
of electric consumption of each GPU assuming a unique power consumption of 200W and an
average price of electricity of 0.206 dollars per KWh, we are also assuming that the machines
will produce all the 365 days of the year. Different GPUs have different prices, since some of
them are considered as cheap and other ones are high quality and expensive, therefore it is
expected that with the same initial investment, we can afford a different number of GPUs, prices
and numbers of cards purchased with 2000 dollars can be found on table 3. We will also
assume that at the end of 3 years of usage the cards can be sold for half of the price, therefore
depreciation of equipment’s its calculated for three years up to half of the investment, resulting
in 333,33 dollars per year.
Price one GPU #Cards
1050Ti 205.99 9.709209185
1060 349.95 5.715102157
1070 534.9 3.739016639
1070Ti 579.99 3.448335316
1080 709.22 2.819999436
1080Ti 1019.99 1.960803537

Table 3. Prices and number of cards purchased with 2000 dollars

The revenue of each combination of GPU and coin can be obtained using the following
equation:
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 . ($) = (𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 . ) ∗ (𝑃𝑟𝑖𝑐𝑒 ) ∗ (365 𝑑𝑎𝑦𝑠) ∗ (#𝐺𝑃𝑈 )

The cost of production for each one of the GPUs can be obtained using the following equation:
24 ℎ
𝐶𝑜𝑠𝑡 ($) = #𝐺𝑃𝑈 ∗ (200𝑊) ∗ (365 𝑑𝑎𝑦𝑠) ∗ (0.206 𝐷𝑜𝑙𝑙𝑎𝑟𝑠 𝑝𝑒𝑟 𝐾𝑊ℎ)
1000

Profit for each one of the possible combinations can be calculated using the following equation:
𝑃𝑟𝑜𝑓𝑖𝑡 . = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 . ($) − 𝐶𝑜𝑠𝑡 ($) − 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛(𝑦𝑒𝑎𝑟)

CRYPTOCURRENCIES: TO TRADE OR TO MINE 4

On the following tables we calculated all the profit results for each one of the combination of
scenarios, GPUs and coins, table 4:

ETH
1050Ti 1060 1070 1070Ti 1080 1080Ti
High 1341.779 2595.929 2854.429 2606.604 1249.03 1408.514
Good -733.336 597.1617 1038.231 931.6023 207.9878 303.6784
Reg -1252.11 97.46992 584.1821 512.8519 -52.2727 338.3162
low -2549.06 -1151.76 -550.941 -534.024 -702.924 -663.053
Crash -800 -700 -600 -500 -400 -300

ETC
1050Ti 1060 1070 1070Ti 1080 1080Ti
High 798.8878 2032.705 2175.459 2041.725 911.6212 1118.315
Good -1059.07 259.2277 630.8497 592.675 5.542626 129.5588
Reg -1523.56 -184.142 244.6973 230.4126 -220.977 193.2165
low -2684.78 -1292.57 -720.684 -675.244 -787.276 -735.603
Crash -800 -700 -600 -500 -400 -300

BITGOLD
1050Ti 1060 1070 1070Ti 1080 1080Ti
High 1116.56 1998.695 2891.102 3032.095 3077.264 2123.211
Good -868.468 238.8215 1060.235 1186.897 1304.928 732.4966
Reg -1364.72 -201.147 602.5188 725.5978 861.8443 695.6647
low -2605.37 -1301.07 -541.773 -427.651 -245.865 -484.379
Crash -800 -700 -600 -500 -400 -300

Zcash
1050Ti 1060 1070 1070Ti 1080 1080Ti
High 1026.751 2088.427 2719.631 2858.506 2892.243 2240.413
Good -922.353 292.6606 957.3525 1082.744 1193.916 802.8178
Reg -1409.63 -156.281 516.783 638.803 769.3339 754.2657
low -2627.82 -1278.63 -584.641 -471.048 -292.121 -455.078
Crash -800 -700 -600 -500 -400 -300

Monero
1050Ti 1060 1070 1070Ti 1080 1080Ti
High -134.19 818.8297 1398.477 1263.841 745.8484 737.4501
Good -1618.92 -469.098 164.6601 125.9448 -93.9211 -98.9601
Reg -1990.1 -791.08 -143.794 -158.529 -303.863 2.784148
low -2918.05 -1596.03 -914.929 -869.714 -828.719 -830.819
Crash -800 -700 -600 -500 -400 -300

Table 4. Profits of each one of the combinations (Price x GPU x Coin)

CRYPTOCURRENCIES: TO TRADE OR TO MINE 5

 With this information of profit the decision tree was built, assigning the following
probabilities of occurrence on the events of price (High 0.225, Good 0.225, Reg 0.225, low
0.225, crash 0.1)
Results obtained from the decision tree suggest that for the following cases it is a better
decision to mine cryptocurrencies instead of trading them, since the possible outcomes are
more favorable toward this option. The best highlighted option results on mining BitcoinGold
(low price easy to mine cryptocoin), using an NVIDIA 1080 Card (High quality powerful video
card) Figure 1, this will result on a possible profit of almost 1100 dollars, whereas trading offers
a probable outcome of profit of only 115 dollars considering the 5 scenarios, figure 2. The worst
scenario is attempting to mine Monero (Middle range price low production) using an NVIDIA
1050Ti card (Low price card and low power), figure 3. In summary the following analysis have
highlighted that it is better to mine and if we choose this option the best coin out of the 5 selected
is BitcoinGold.
23%
High
3077.26
3077.26 3077.26

23%
Good
1304.93
1304.93 1304.93

23%
NVIDIA 1080 BitcoinGold Reg
3 861.844
= 1084.588025 = 1084.588025 861.844 861.844

23%
Bad
-245.865
-245.865 -245.865

10%
Crash
-400
-400 -400

Figure 1. Best option

CRYPTOCURRENCIES: TO TRADE OR TO MINE 6

 23%
High
2000
2000 2000

23%
Good
400
400 400

23%
Trade Reg
0
0 115 0 0

23%
Bad
-1000
-1000 -1000

10%
Crash
-2000
-2000 -2000

Figure 2. Trading outcome

23%
High
-134.19
-134.19 -134.19

23%
Good
-1618.92
-1618.92 -1618.92

23%
Monero Reg
-1990.1
= -1578.7835 -1990.1 -1990.1

23%
Bad
-2918.05
-2918.05 -2918.05

10%
Crash
-800
-800 -800

Figure 3. Worst option

CRYPTOCURRENCIES: TO TRADE OR TO MINE 7

Note: Data, calculations and the decision tree can be consulted by clicking on the following excel
icons:

D
ataF
ileC
rypto.xlsx Decissiontree.xlsx

Cheap and unreliable or expensive and trusty?

One of the biggest and most important assumptions that it was made on the previous
decision analysis was related to the price of energy and the consumption of power of each one
of the GPUs, in order to be able to compute a relative small decision tree it was assumed a
price of 0.206 dollars per KWh and it was assumed that all of the GPUs had a power
consumption of 200W, by making this assumption we managed to answer two question weather
to mine or trade? and which coin to mine? But we still have to answer which GPU to use? And
on which country we should mine?
In order to answer this question, we would use again a decision tree, however we will do
this tree already considering that we are going to mine BitcoinGold, therefore the only decisions
to made are on which GPUs to choose and which country. For this tree we are still considering
the six GPUs used before and 4 options of countries, United States (Expensive energy - high
reliability), France (Subsidized mid-range energy price – good reliability, Philippines (Medium
to high price - good reliability) and Venezuela (Subsidized low price – low reliability). We
gathered data on the power consumption and energy price on different countries, Table 5 & 6.

Card Consumption Countries Cost Kwh $

1050Ti 75
1060 96 US 0.37
1070 150 France 0.19
1070Ti 140
1080 200
Venezuela 0.016
1080Ti 265 Philipines 0.25
Table 5 & 6. Consumption of GPUs and Energy price on different countries

This information was used to calculate the revenues, cost and expected profits on three
different scenarios of productivity, a high or good scenario on which the GPU will be working
30 days of the month, an average scenario on which the GPU will be working 22 days of the
month and a bad scenario on which the GPU will be working 15 days of the month, this
productivity refers to the reliability of the system and a probability of scenario was assigned to
each one of the countries, Table 7.

CRYPTOCURRENCIES: TO TRADE OR TO MINE 8

 Probabilities Venezuela France US Phillipines
Good 0.05 0.4 0.8 0.5
Average 0.25 0.5 0.15 0.3
Bad 0.7 0.1 0.05 0.2
Table 7. Reliability of each one of the countries

The revenue for each one of the countries was calculating using the raw daily data of
productivity of each one of the GPUs but only for BitcoinGold (Table 2, line 4), for each one of
the scenarios, using the following equation, on a monthly basis, assuming an initial investment
of the same 2000 Dollars:
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 . = (𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 ) ∗ (#𝐺𝑃𝑈 ) ∗ (𝑃𝑟𝑖𝑐𝑒 ) ∗ (𝑊𝑜𝑟𝑘𝑖𝑛𝑔𝑑𝑎𝑦𝑠 )

The cost of production was calculated on a monthly basis, for each one of the GPUs on
each one of the countries and for each one of the scenarios, using the following equation:
24
𝐶𝑜𝑠𝑡 ∗∗ = (𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑛𝑒𝑟𝑔𝑦 ) ∗ (𝑃𝑜𝑤𝑒𝑟𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 ) ∗ (𝑊𝑜𝑟𝑘𝑖𝑛𝑔𝑑𝑎𝑦𝑠 ) ∗ (#𝐺𝑃𝑈 ) ∗ ( )
1000

Profit was calculated for each one of the scenarios on each one of the countries and for
each one of the GPUs using the following equation:
𝑃𝑟𝑜𝑓𝑖𝑡 ∗∗ = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 . − (𝐶𝑜𝑠𝑡 ∗∗ )

The results of Revenue, Cost and profit on each scenario and for each country the
calculations can be found on the following table 8:
Venezuela PW Good Av Bad BTCgold day Good Av Bad Good profit Avg profit Bad Profit
1050Ti 75 8.388757 6.151755 4.194378 0.0081 203.9411622 149.5569 101.9706 195.55241 143.405097 97.7762
1060 96 6.320446 4.634994 3.160223 0.0122 180.8089156 132.5932 90.40446 174.48847 127.958211 87.24423
1070 150 6.461021 4.738082 3.23051 0.0194 188.1027482 137.942 94.05137 181.64173 133.203933 90.82086
1070Ti 140 5.561475 4.078415 2.780738 0.0212 189.5751306 139.0218 94.78757 184.01366 134.943347 92.00683
1080 200 6.497279 4.764671 3.248639 0.0249 182.0892812 133.5321 91.04464 175.592 128.767468 87.796
1080Ti 265 5.985941 4.38969 2.992971 0.0281 142.8816361 104.7799 71.44082 136.8957 100.390176 68.44785

US PW Good Av Bad BTCgold day Good Av Bad Good profit Avg profit Bad Profit
1050Ti 75 193.99 142.2593 96.995 0.0081 203.9411622 149.5569 101.9706 9.9511627 7.2975193 4.975581
1060 96 146.1603 107.1842 73.08015 0.0122 180.8089156 132.5932 90.40446 34.648607 25.4089784 17.3243
1070 150 149.4111 109.5681 74.70555 0.0194 188.1027482 137.942 94.05137 38.691643 28.3738718 19.34582
1070Ti 140 128.6091 94.31335 64.30456 0.0212 189.5751306 139.0218 94.78757 60.966017 44.7084122 30.48301
1080 200 150.2496 110.183 75.12478 0.0249 182.0892812 133.5321 91.04464 31.839711 23.3491216 15.91986
1080Ti 265 138.4249 101.5116 69.21244 0.0281 142.8816361 104.7799 71.44082 4.4567496 3.26828302 2.228375

CRYPTOCURRENCIES: TO TRADE OR TO MINE 9

Phillipines PW Good Av Bad BTCgold day Good Av Bad Good profit Avg profit Bad Profit
1050Ti 75 131.0743 96.12117 65.53716 0.0081 203.9411622 149.5569 101.9706 72.866838 53.4356813 36.43342
1060 96 98.75697 72.42177 49.37848 0.0122 180.8089156 132.5932 90.40446 82.05195 60.1714302 41.02598
1070 150 100.9534 74.03253 50.47672 0.0194 188.1027482 137.942 94.05137 87.149299 63.9094859 43.57465
1070Ti 140 86.89805 63.72524 43.44902 0.0212 189.5751306 139.0218 94.78757 102.67708 75.2965258 51.33854
1080 200 101.52 74.44799 50.75999 0.0249 182.0892812 133.5321 91.04464 80.569301 59.0841544 40.28465
1080Ti 265 93.53033 68.58891 46.76516 0.0281 142.8816361 104.7799 71.44082 49.351307 36.1909587 24.67565

France PW Good Av Bad BTCgold day Good Av Bad Good profit Avg profit Bad Profit
1050Ti 75 99.61649 73.05209 49.80824 0.0081 203.9411622 149.5569 101.9706 104.32468 76.5047624 52.16234
1060 96 75.05529 55.04055 37.52765 0.0122 180.8089156 132.5932 90.40446 105.75362 77.5526561 52.87681
1070 150 76.72462 56.26472 38.36231 0.0194 188.1027482 137.942 94.05137 111.37813 81.677293 55.68906
1070Ti 140 66.04252 48.43118 33.02126 0.0212 189.5751306 139.0218 94.78757 123.53261 90.5905826 61.76631
1080 200 77.15518 56.58047 38.57759 0.0249 182.0892812 133.5321 91.04464 104.9341 76.9516708 52.46705
1080Ti 265 71.08305 52.12757 35.54152 0.0281 142.8816361 104.7799 71.44082 71.798586 52.6522966 35.89929

Table 8. Profit, revenue and cost for each one of countries, GPUs and Scenarios

On the previous analysis the result of the decision tree showed that the best option would
be to go for an expensive GPU, however this result was obtained by assuming the same power
consumption 200W, but when we make an analysis of the behavior of price, unitary productivity,
total productivity and power consumption this result might vary, Table 9.
Card Consumption Price # Cards Productivity 1 Productivity T
1050Ti 75 205.99 9.709209185 0.0081 0.078644594
1060 96 349.95 5.715102157 0.0122 0.069724246
1070 150 534.9 3.739016639 0.0194 0.072536923
1070Ti 140 579.99 3.448335316 0.0212 0.073104709
1080 200 709.22 2.819999436 0.0249 0.070217986
1080Ti 265 1019.99 1.960803537 0.0281 0.055098579

Table 9. Behavior of variables for each GPU mining BitcoinGold

When we look at this results normalized and we see the trend of the behavior we would
notice that the cost of production and price, increases at a higher rate for the more expensive
cards than the total productivity, which might suggest that a cheaper GPU, that consumes less
energy but in a higher quantity will product a better profit result than an expensive GPU that
consumes plenty of energy Table 10, Figure 4.
Card Consumption Price Productivity 1 Productivity T
1050Ti 100% 100% 100% 100%
1060 128% 170% 151% 89%
1070 200% 260% 240% 92%
1070Ti 187% 282% 262% 93%
1080 267% 344% 307% 89%
1080Ti 353% 495% 347% 70%

Table 10. Behavior of Normalized variables for each GPU mining BitcoinGold

CRYPTOCURRENCIES: TO TRADE OR TO MINE 10

 Figure 4. Behavior of Normalized variables for each GPU mining BitcoinGold

All the results calculated on profit were used to build up a decision tree, that would help
us to determine which decision results better regarding weather to use cheap equipment’s or
expensive ones and to set up operations on a cheap energy country which is unreliable or on
an expensive reliable. The results obtained on the decision tree suggests that the best option
is to set up operations on Venezuela using NVIDIA 1050Ti Figure 5. The worst possible decision
is the complete opposite which is setup operations in the US using an expensive GPU NVIDIA
1080Ti, figure 6.

5%
Good
195.55
195.55 195.55

25%
Venezuela Average
143.4
0 114.0665 143.4 143.4

70%
Bad
97.77
97.77 97.77
Figure 5. Best decision on country GPU

CRYPTOCURRENCIES: TO TRADE OR TO MINE 11

 4.45
4.45 4.45

15%
US Average
3.26
0 4.16 3.26 3.26

5%
Bad
2.22
1080Ti 2.22 2.22
1

Figure 6. Worst Outcome

Note: Data, calculations and the decision tree can be consulted by clicking on the following excel
icons:

Cost of Energy Decission tree

decission.xlsx energetics.xlsx

DCFC investment analysis

So far we have been able to find the answer of four of our initial questions, with the
results obtained on both of the decision trees, we know that we should mine and not trade
BitcoinGold using NVIDIA 1050Ti graphic cards, on Venezuela, since the cost of electricity is
negligible and therefore the profit is higher, now the final question that still remains is the first
one that we pose, if we decide to invest 10 thousand dollars on mining, would be able to
produce a positive value on a 36 months horizon with a reasonable return? The only way to
answer this question is by using discounted free cash flow DCFC model and calculate the net
present value. The initial data and assumptions can be found on table 11.
Initial Investment $ 10,000.00
Cost of GPU $ 205.99
Cost of Energy $Kwh $ 0.016
Power Comp W 75
Price BitcoinGold 86.44
# of Machines 28.56
Production day 0.0081
Days production 22
Depreciation Monthly $ 277.78
Difficulty % 0.1%
Tax rate 34%
WACC Annual 15%
WACC Monthly 1.25%

Table 11. Initial data for DCFC

CRYPTOCURRENCIES: TO TRADE OR TO MINE 12

 Using this data a DCFC model is built up using the same equation used before for
revenue, and operative costs; depreciation would also be included up to zero value using the
linear method for 36 months, productivity of coin is going to decline at 0.1% per month since
this is typical with cryptocurrencies, and 50 dollars of monthly maintenance costs and salary
will be included (Venezuela has a current cheap labor rate), for this model we are assuming
that equipment’s will be sold at the end of the third year at 50% of the initial price. The build up
DCFC model can be found on table 12.
Period 0 1 2 34 35 36
Investment $ 10,000.00 0 0 0 0 -5000
Days of production 22 22 22 22 22
Production rate day 0.23130763 0.231076 0.223795 0.223572 0.22334799
Production total 5.08876787 5.083679 4.923498 4.918574 4.913655773
Price 86.44 86.44 86.44 86.44 86.44
Revenue 439.873095 439.4332 425.5872 425.1616 424.736405
Power consumption kW 1130.83731 1130.837 1130.837 1130.837 1130.837305
Power cost $ 18.09 $ 18.09 $ 18.09 $ 18.09 $ 18.09
Maintenance Salaries $ 50.00 $ 50.00 $ 50.00 $ 50.00 $ 50.00
Dep $ 277.78 $ 277.78 $ 277.78 $ 277.78 $ 277.78
EBT $ 94.00 $ 93.56 $ 79.72 $ 79.29 $ 5,078.87
Tax $ 31.96 $ 31.81 $ 27.10 $ 26.96 $ 1,726.81
NI $ 62.04 $ 61.75 $ 52.61 $ 52.33 $ 3,352.05
FCF $ 339.82 $ 339.53 $ 330.39 $ 330.11 $ 3,629.83
DFCF $ (10,000.00) $335.62 $331.20 $216.57 $213.71 $2,320.95

Table 12. DCFC Model

As per the result the most important outcomes will be the NPV, the Static Payback and
the IRR. In order to quantify appropriately the risk involved on this business certain variable will
be set as a distribution, these variables are: Price, Production rate day and the cost of energy.
10 Thousand simulations are run in order to find out the distribution of the results in NPV, IRR,
Static Payback and a possible outcome of profits coming from trading instead of mining on a
scenario that we choose to invest the same 10 Thousand dollars on buying cryptocoins and
trading them each month at a different price.

CRYPTOCURRENCIES: TO TRADE OR TO MINE 13

 Figure 7. Monte Carlo Simulations outcome NPV

Results obtained from the simulation on figure 7, suggest a positive NPV in average of
1649 dollars with a standard deviation of 1030 dollar, and we are 96% sure that such an
investment in mining will produce a positive value at a discount rate of 1.25% per month. The
results obtained from the static payback figure 8, suggest a static payback in average of 2.53
years, with an standard deviation of 0.74 years, and we have a 91% confidence level that we
will recover the initial investment in less than 3 years, based on the free cash flows from the
operations.

Figure 8. Monte Carlo Simulations outcome Static Payback

CRYPTOCURRENCIES: TO TRADE OR TO MINE 14

 Finally, we run a simulation attempting to explain why some investors will like to pursue
trading instead of mining; traders love volatility since it offers tremendous opportunities to profit,
although it offers plenty of risk, whereas mining is considered to be a more stable business. We
run a monte carlo simulation of the total profit made from trading BitcoinGold once per month
at different prices figure 9.

Figure 9. BitcoinGold prices for 36 months and opportunities for profit

The results obtained of the simulations figure 9 suggest what we assume, since the price
might behave randomly, the final output in profit selling and buying randomly result in almost a
0 average profit scenario, although when we look at the standard deviation, it has a value of
7167 dollars, this means that an scenario on which we can obtain a 20 thousand dollars profit
with an investment of 10 thousand is possible, with low probability but possible, however we
can still loss all of our investment as well. If we look with more details in the result an scenario
of the same profit from mining 1649 dollars has a probability of only 41% compared with the
96% obtained from mining which has less capacity for high profits but it is more secure.

CRYPTOCURRENCIES: TO TRADE OR TO MINE 15

 Figure 10. MonteCarlo Simulations of profits from trading

Figure 11. Equivalent probability of obtaining 1649 profit result by trading

CRYPTOCURRENCIES: TO TRADE OR TO MINE 16

DCFC Sensitivity Analysis
So far, all our questions have been answered using different analytic tools, the only thing
that remains, is to build up sensitivity analysis in our models to figure out the most relevant
variables that might drive up or down or profits.
Static Payback vs Days of productivity vs Price

Price Productivity
10 12 14 16 18 20 22 24 26 28 30
$ 50.00 6.30 5.69 5.19 4.76 4.41 4.10 3.83 3.60 3.39 3.21 3.04
$ 60.00 5.65 5.06 4.58 4.18 3.85 3.56 3.32 3.11 2.92 2.75 2.60
$ 70.00 5.12 4.55 4.10 3.72 3.41 3.15 2.93 2.73 2.56 2.41 2.28
$ 80.00 4.68 4.14 3.71 3.36 3.07 2.83 2.62 2.44 2.28 2.15 2.02
$ 90.00 4.31 3.79 3.38 3.06 2.79 2.56 2.37 2.20 2.06 1.93 1.82
$ 100.00 3.99 3.50 3.11 2.81 2.55 2.34 2.16 2.01 1.88 1.76 1.66
$ 110.00 3.72 3.25 2.88 2.59 2.35 2.16 1.99 1.85 1.72 1.61 1.52
$ 120.00 3.48 3.03 2.69 2.41 2.18 2.00 1.84 1.71 1.59 1.49 1.40
$ 130.00 3.27 2.84 2.51 2.25 2.04 1.86 1.71 1.59 1.48 1.38 1.30
$ 140.00 3.09 2.68 2.36 2.11 1.91 1.74 1.60 1.48 1.38 1.29 1.21
$ 150.00 2.92 2.53 2.23 1.99 1.80 1.64 1.51 1.39 1.30 1.21 1.14

Table 13. Static payback vs Days of production and Coin price

Figure 12. Static payback vs Days of production and Coin Price Area

CRYPTOCURRENCIES: TO TRADE OR TO MINE 17

NPV vs Days of productivity vs Price
Price Productivity
10 12 14 16 18 20 22 24 26 28 30
$ 50.00 $ (4,107.28) $ (3,705.25) $ (3,303.22) $ (2,901.18) $ (2,499.15) $ (2,097.12) $ (1,695.08) $ (1,293.05) $ (891.02) $ (488.98) $ (86.95)
$ 60.00 $ (3,673.93) $ (3,185.23) $ (2,696.53) $ (2,207.82) $ (1,719.12) $ (1,230.42) $ (741.71) $ (253.01) $ 235.69 $ 724.39 $ 1,213.10
$ 70.00 $ (3,240.58) $ (2,665.21) $ (2,089.84) $ (1,514.46) $ (939.09) $ (363.72) $ 211.65 $ 787.03 $ 1,362.40 $ 1,937.77 $ 2,513.15
$ 80.00 $ (2,807.23) $ (2,145.19) $ (1,483.15) $ (821.10) $ (159.06) $ 502.98 $ 1,165.02 $ 1,827.07 $ 2,489.11 $ 3,151.15 $ 3,813.19
$ 90.00 $ (2,373.88) $ (1,625.17) $ (876.46) $ (127.74) $ 620.97 $ 1,369.68 $ 2,118.39 $ 2,867.11 $ 3,615.82 $ 4,364.53 $ 5,113.24
$ 100.00 $ (1,940.53) $ (1,105.15) $ (269.77) $ 565.61 $ 1,401.00 $ 2,236.38 $ 3,071.76 $ 3,907.14 $ 4,742.53 $ 5,577.91 $ 6,413.29
$ 110.00 $ (1,507.18) $ (585.13) $ 336.92 $ 1,258.97 $ 2,181.03 $ 3,103.08 $ 4,025.13 $ 4,947.18 $ 5,869.24 $ 6,791.29 $ 7,713.34
$ 120.00 $ (1,073.83) $ (65.11) $ 943.61 $ 1,952.33 $ 2,961.06 $ 3,969.78 $ 4,978.50 $ 5,987.22 $ 6,995.94 $ 8,004.67 $ 9,013.39
$ 130.00 $ (640.48) $ 454.91 $ 1,550.30 $ 2,645.69 $ 3,741.08 $ 4,836.48 $ 5,931.87 $ 7,027.26 $ 8,122.65 $ 9,218.05 $ 10,313.44
$ 140.00 $ (207.13) $ 974.93 $ 2,156.99 $ 3,339.05 $ 4,521.11 $ 5,703.18 $ 6,885.24 $ 8,067.30 $ 9,249.36 $ 10,431.43 $ 11,613.49
$ 150.00 $ 226.22 $ 1,494.95 $ 2,763.68 $ 4,032.41 $ 5,301.14 $ 6,569.88 $ 7,838.61 $ 9,107.34 $ 10,376.07 $ 11,644.80 $ 12,913.54

Table 14. NPV vs Days of production and Coin price

Figure 13. Static payback vs Days of production and Coin Price Area

CRYPTOCURRENCIES: TO TRADE OR TO MINE 18

IRR vs Days of productivity vs Price

Price Productivity
10 12 14 16 18 20 22 24 26 28 30
$ 50.00 -2.06% -1.85% -1.64% -1.43% -1.23% -1.02% -0.82% -0.62% -0.43% -0.23% -0.04%
$ 60.00 -1.83% -1.58% -1.33% -1.08% -0.83% -0.59% -0.36% -0.12% 0.11% 0.34% 0.57%
$ 70.00 -1.61% -1.31% -1.02% -0.73% -0.45% -0.17% 0.10% 0.37% 0.64% 0.90% 1.16%
$ 80.00 -1.38% -1.05% -0.72% -0.39% -0.08% 0.24% 0.55% 0.85% 1.15% 1.44% 1.73%
$ 90.00 -1.16% -0.79% -0.42% -0.06% 0.29% 0.64% 0.98% 1.32% 1.65% 1.97% 2.30%
$ 100.00 -0.94% -0.53% -0.13% 0.27% 0.65% 1.03% 1.41% 1.78% 2.14% 2.49% 2.85%
$ 110.00 -0.73% -0.28% 0.16% 0.59% 1.01% 1.42% 1.83% 2.22% 2.62% 3.00% 3.38%
$ 120.00 -0.52% -0.03% 0.44% 0.91% 1.36% 1.80% 2.24% 2.67% 3.09% 3.50% 3.91%
$ 130.00 -0.31% 0.21% 0.72% 1.22% 1.70% 2.18% 2.64% 3.10% 3.55% 4.00% 4.43%
$ 140.00 -0.10% 0.46% 1.00% 1.53% 2.04% 2.55% 3.04% 3.53% 4.01% 4.48% 4.95%
$ 150.00 0.11% 0.70% 1.27% 1.83% 2.38% 2.91% 3.44% 3.95% 4.46% 4.96% 5.45%

Table 15. IRR vs Days of production and Coin price

Figure 14. IRR vs Days of production and Coin Price Area

CRYPTOCURRENCIES: TO TRADE OR TO MINE 19

Cost of Energy & Markdown price of assets vs IRR, NPV, Static payback

Selling Price % of Price NPV Dollars $ IRR %

0 0% $ (331.06) -0.19580%
-526.315789 5% $ (108.95) -0.06246%
-1052.63158 11% $ 113.16 0.06300%
-1578.94737 16% $ 335.27 0.18153%
-2105.26316 21% $ 557.39 0.29391%
-2631.57895 26% $ 779.50 0.40079%
-3157.89474 32% $ 1,001.61 0.50273%
-3684.21053 37% $ 1,223.72 0.60019%
-4210.52632 42% $ 1,445.83 0.69358%
Cost of Energy Payback (years) NPV (Dollars $) IRR % -4736.84211 47% $ 1,667.94 0.78325%
$ 0.005 2.39 $ 2,015.83 0.934% -5263.15789 53% $ 1,890.05 0.86949%
$ 0.055 2.68 $ 950.08 0.446% -5789.47368 58% $ 2,112.16 0.95259%
$ 0.104 3.04 $ (115.67) -0.055% -6315.78947 63% $ 2,334.27 1.03277%
$ 0.154 3.51 $ (1,181.41) -0.570% -6842.10526 68% $ 2,556.38 1.11025%
$ 0.203 4.16 $ (2,247.16) -1.101% -7368.42105 74% $ 2,778.49 1.18522%
$ 0.253 5.10 $ (3,312.91) -1.649% -7894.73684 79% $ 3,000.60 1.25783%
$ 0.302 6.59 $ (4,378.65) -2.217% -8421.05263 84% $ 3,222.71 1.32826%
$ 0.352 9.32 $ (5,444.40) -2.806% -8947.36842 89% $ 3,444.82 1.39662%
$ 0.401 15.88 $ (6,510.15) -3.420% -9473.68421 95% $ 3,666.93 1.46305%
$ 0.451 53.66 $ (7,575.89) -4.059% -10000 100% $ 3,889.04 1.52766%

Table 16. NPV, IRR, Payback vs Cost of Energy & markdown price on assets

Figure 14. NPV, IRR, Payback vs Cost of Energy curve

Note: Data, calculations and the simulations can be consulted by clicking on the following excel icons:

DCF analysis 2.xlsx

CRYPTOCURRENCIES: TO TRADE OR TO MINE 20

Conclusion
When we look at the world, we might get up overwhelmed by the complexity of its
process by the amount of randomness and disorder, we might get the impression that it is
impossible to understand it and that we are just slaves of the outcomes, however we sill have
a tool to at least clarify what at first view seems like a maze. Models are created to simplify our
understanding of complex processes making it easier to address the correct variables, although
despite the benefits of models we still are slaves of the odds and in the past people will just
venture themselves on a tryout adventure always hoping for the better, but today thanks to the
advancements on information technology and computers we are able to simulate our models
and include stochastic variables to predict probabilities for outcomes, helping us to take better
decisions.
The previously studied case is just a sample of what we can do when combining the
power of data modeling and simulation, it gives up a clearer picture of what at first sight look
like an impossible problem to solve.
Attempting to answer all the questions that we proposed at the beginning of the analysis
without using the advanced analytic tools would have resulted in an almost impossible task, or
worst it might have resulted on at outcome on which we would have taken the wrong decision
that could end in loosing our investments and savings.

Sources
 https://www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-
currency-everyone-should-read/2/#6b1ce3fc533c
 https://www.coindesk.com/information/how-bitcoin-mining-works/
 http://si-journal.org/index.php/JSI/article/viewFile/335/325

Prepared for: Prof. Gisele HITES

Prepared by: MOU THAM, Shereene | ORTA, John | PEREZ ARMAS, Luis

CRYPTOCURRENCIES: TO TRADE OR TO MINE 21