Quarterly Mark December 2023 - 62

EXHIBIT 15
Production Theory of Value
$100,000
Adam Hayes argues that
Bitcoin's value has a
floor of at least its costs
of production-in other
words, the marginal cost
of mining each bitcoin.
$10,000
$1,000
We are skeptical of this
approach. Just because
something costs money to
make does not mean
it has value.*
$100
2015
2017
2018
Price Floor Estimate
Cost of Production =
2020
2021
Observed Price
Electricity Cost of Hash Rate
Bitcoins Mined Per Day
SOURCES: *Hayes (2018); Invesco (2021a, 2021b, 2021c). Model recreated using estimates from Cambridge University Centre for Alternative
Finance and data from Coinmetrics. Values are seven-day moving averages. Data as of January 15, 2023.
Drivers of demand
* Is there significant brand reputation or press coverage (as there is for
Bitcoin)?
* How scalable is the cryptocurrency? Does it suffer from limited network
capacity?
* Is demand driven by use or by speculation?
* Do similar or undifferentiated coins exist?
Uses
* Does the crypto support decentralized applications? If so, is there an active
development community?
* Does the crypto serve a specific use (e.g. payments facilitation, or value
pegged to an asset such as gold or the US dollar)?
Empirical Approaches to Valuation
Given their great variation, cryptos can be valued using a number of approaches.
As a starting point, we explore two valuation methods for Bitcoin. In our opinion,
neither of these more plausible empirical models describes Bitcoin's price behavior.
62 | Exploring Cryptocurrencies: The History, the Hype, and the Future
Price per Bitcoin, USD

Quarterly Mark December 2023

Table of Contents for the Digital Edition of Quarterly Mark December 2023

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Quarterly Mark December 2023 - Back Cover
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