Predictability, Innovation, and Competition in Bitcoin's Mining Market

62 Pages Posted: 5 Dec 2017 Last revised: 7 Oct 2018

Date Written: October 2, 2018


We construct and estimate a dynamic oligopoly model of the Bitcoin mining market. Mining equipment manufacturers produce differentiated durable capital goods and endogenously choose optimal investments in R&D. Miners make dynamic purchase decisions based partly on beliefs regarding manufacturers' future choices. We show that policy-relevant values, such as aggregate R&D investment by manufacturers and network energy consumption, are predictable given only a Bitcoin price-path. We further show the industry is uniquely suited to test the impact of product market competition on innovation, a much-debated subject in the economics of R&D literature.

Keywords: Bitcoin, Crypto-currency, R&D, Innovation, Dynamic Oligopoly, Predictability

JEL Classification: G23, E42, L11, L63, O31

Suggested Citation

Parham, Robert and Kjenstad, Einar C., Predictability, Innovation, and Competition in Bitcoin's Mining Market (October 2, 2018). Available at SSRN: or

Robert Parham (Contact Author)

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States


Einar C. Kjenstad

Aarhus University ( email )

Nordre Ringgade 1
Aarhus, 8000

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