Bitcoin price and its marginal cost of production: support for a\n fundamental value

Abstract

This study back-tests a marginal cost of production model proposed to value\nthe digital currency bitcoin. Results from both conventional regression and\nvector autoregression (VAR) models show that the marginal cost of production\nplays an important role in explaining bitcoin prices, challenging recent\nallegations that bitcoins are essentially worthless. Even with markets pricing\nbitcoin in the thousands of dollars each, the valuation model seems robust. The\ndata show that a price bubble that began in the Fall of 2017 resolved itself in\nearly 2018, converging with the marginal cost model. This suggests that while\nbubbles may appear in the bitcoin market, prices will tend to this bound and\nnot collapse to zero.\n