In a recent blog post, New York University professor Aswath Damodaran, known as the “dean of valuations,” argued that bitcoin isn’t an asset, but a currency that “cannot be valued.” Separately, he pointed out that bitcoin’s best path is to make it as a digital currency that people can take with them wherever they go, or else it might not have the staying power of gold.
To reach his conclusions, Damodaran started by analyzing what bitcoin is. It is either an asset, a commodity, a currency, or a collectible. An asset is something that generates cash flows such as bonds or stocks – and bitcoin doesn’t do that, so it isn’t an asset.
A commodity is used as a raw material. Gold is a well-known example of what a commodity is, but bitcoin is not a raw material, so the option was ruled out. The options came down to it either being a currency or a collectible.
Since bitcoin is durable, divisible, portable, and serves as a store of value, a medium of exchange, and a unit of account, Damodaran concluded that it is a currency. Currencies and collectibles can’t be valued, but they can be priced, NYU’s “dean of valuations” stated, as pricing something depends on market psychology, news, and instinct.
To Damodaran, bitcoin’s long-term price depends on it turning into one of three things:
A widely used global currency
A kind of digital gold that attracts millennials
A modern bubble similar to that of the tulip bulbs
He added that he is a lousy trader and, as such, is unable to price bitcoin. However, from an earlier piece published in August, he states that if users believe bitcoin will become a widely accepted cryptocurrency, then maybe it’s worth its current prices.
“We should stop talking about how much it’s gone up”
Speaking to CNBC, Damodaran pointed out that bitcoin might be just a fad if it doesn’t turn into a digital currency people can take with them to buy and sell things with. To him, another digital currency could replace it if that doesn’t happen.
Moreover, he pointed out that how much it’s gone up this year isn’t something bitcoiners should boast about, as it goes against it is a good currency. He stated:
“I think we need to stop talking about how much it’s gone up in the last year. A good currency is not something you boast about how much money you made in it. The pricing is getting out of hand relative to its use as a currency.”