New York University’s “Dean of Valuation” said that one cannot accurately value bitcoin and other cryptocurrencies.
Aswath Damodaran, a professor at NYU’s Stern School of Business, made this claim in response to recent comments from investing icon Warren Buffet, who stated his belief that bitcoin and other cryptocurrencies “will come to a bad ending.”
Accusing Buffet of painting cryptoassets with a broad brush, Damodaran stated:
“I don’t think you can write off cryptocurrencies altogether,” he said during a televised interview with CNBC. “Is it going to end badly for some of the people involved? Absolutely,” he said, forecasting that many recent speculators could pay the price of investing solely on the hopes of selling to someone else at a higher price later on.
Damodaran said that because bitcoin is marketed as a cryptocurrency, it is impossible to evaluate it. This is why, in the past, he has labeled bitcoin a “dangerous pricing game.”
However, he stressed that it is important to differentiate between cryptocurrencies and other types of cryptoassets. Crypto-commodities, a group that he said includes Ethereum’s ether “fuel”, could be valued similarly to traditional commodities, while initial coin offering (ICO) tokens could be analyzed similarly to companies.
But although certain types of cryptoassets can theoretically be valued, he said that they are almost universally being “priced” instead.
“I think every single cryptoasset is being priced right now, it’s not being valued. If you ask people why they’re paying what they are for any of these crypto-investments, you don’t get a logical answer,” he said, concluding that investors are just looking for a way to make money.
Disputes about whether and how bitcoin can be valued are a hot topic among analysts.
A recent Wall Street Journal report argued that, if bitcoin is a commodity as many analysts suggest, it should be valued like gold — whose price tends to “fall back toward the marginal cost of production” over the long-term. Citing a report which said that just $3,224 worth of electricity was needed to mine a single bitcoin in some regions of the US, the Journal warned that “bitcoin might have a long way to fall.”
Wall Street strategist Tom Lee, on the other hand, has said that bitcoin should be valued similarly to a telecommunications network. Based on this model, he has said that the bitcoin price could “easily double” in 2018 due to the rapidly-increasing number of network-connected users.
Featured image from YouTube.
Last modified: March 4, 2021 5:03 PM