RETROSPECTIVE CRITICAL ASSESSMENT OF A BITCOIN MINING PROJECT VALUATION: REALITY VS. FORECASTS FOUR YEARS LATER

Abstract

Bitcoin mining has evolved into a capital-intensive industry driven by volatile market conditions, technological advancements, and energy costs. In 2020, a Bitcoin mining project, worth $ 11 million of investment was proposed in Republic of Georgia but was never realized. This study retrospectively evaluates the project's financial viability by comparing its initial valuation forecasts with actual market data from 2021 to 2024. The original valuation employed a multi-method approach, integrating Discounted Cash Flow (DCF) analysis, GARCH-based Monte Carlo simulations, and Real Options Pricing to estimate profitability under various market conditions. To assess what the project's actual performance could have been, we compare the initial projections with real- world Bitcoin price trends, global hashrate growth, mining difficulty adjustments, and electricity costs over four years. While initial forecasts suggested a positive net present value, Tobin's Q of 2.4-3.7 and an IRR above 65%, actual market conditions reveal key upside deviations of BTC and Hash rate with Tobin's Q of around or less than one. Bitcoin's price surged throughout the examined period, significantly exceeding projections, but rising global hashrate and competition reduced the project's expected share of mining rewards. Additionally, energy costs and regulatory changes have affected operational feasibility. Had the project been undertaken, it would have not been profitable, even with effective risk management and operational flexibility. This study provides valuable insights into forecasting accuracy in high uncertainty projects' valuation and highlights lessons for future investment decisions. This study informs investors about the importance of forecasting models and stochastic processes in assessing uncertain irreversible investments, emphasizing the need for strategic flexibility in an ever more volatile world.