  This study back-tests a marginal cost of production model proposed to value
the digital currency bitcoin. Results from both conventional regression and
vector autoregression (VAR) models show that the marginal cost of production
plays an important role in explaining bitcoin prices, challenging recent
allegations that bitcoins are essentially worthless. Even with markets pricing
bitcoin in the thousands of dollars each, the valuation model seems robust. The
data show that a price bubble that began in the Fall of 2017 resolved itself in
early 2018, converging with the marginal cost model. This suggests that while
bubbles may appear in the bitcoin market, prices will tend to this bound and
not collapse to zero.
