Valuation - Mining Cryptocurrency token
There are quite a few bitcoin mining companies tokenizing their mining hash rate such as pBTC25a, BTCST, etc. Let me explain what do these tokens symbolize. Let's first learn how bitcoins are generated/minted.
New bitcoins are generated by a competitive and decentralized process called "mining". This process involves that individuals are rewarded by the network for their services. Bitcoin miners are processing transactions and securing the network using specialized hardware and are collecting new bitcoins in exchange. More information on this can be found here.
This hardware, used to mine, is expensive and utilizes a lot of electricity. For retail investors living in a city with high electricity costs, it is not possible for them to 'mine' bitcoins profitability. Such investors could however pool in money and lend to a business that would operate a 'mining' facility in countries with low electricity costs and then distribute profits to the investors. Tokens are loosely synonymous with shares of this business. If you own 10% of the total token supply then you would be entitled to 10% of the profits that the mine makes. Profits are typically distributed every day and can be distributed as bitcoins or as dollars.
To value this business kind of business, I got these inputs from one of the companies issuing tokens. Each token represents 1TH/s.
Electricity cost: $0.058 kW/hr
Electricity usage: 0.035 kW/TH
Pool fees (management fees) : 2.5%
The above inputs would mean that for each 1TH/s hash rate the company spends $0.05 a day and looking after a quick search online, bitcoin is priced at ~$50000 right now and 1TH/s of hash rate would give me a reward of 0.00000548 BTC a day. This gives me a revenue of $0.27 a day and a profit of $0.22 a day. This information is tabulated below.
In the cryptocurrency realm, investors typically demand a rate of return due of the volatility of the price of bitcoin. I assume a high cost of capital to be conservative and I price this token to be ~$215.
Of course, this price is conditional on the stability of the price of bitcoin. If the price of bitcoin goes up then you would get higher rewards in dollar terms and if the price of bitcoin drops then your dollar returns will drop. Doing some sensitivity analysis around the price of bitcoin, price of token looks as follows,
Lastly, this should not be considered as investment advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.