💰 The Value of Bitcoin for Damodaran 💰
Hello my friends,
Now I will talk a little about Aswath Damodaran's point of view about bitcoin.
On July 18 he gave a very interesting interview about investment and talking about digital coins, including bitcoin, for the American network CNBC.
For those who don't know it, Damodaran is the valuation guru (valuations of companies, assets, debt securities, anyway ... anyone who already study finance, corporate finance, mergers and acquisitions know very well who I I'm speaking). He's the valuation guy.
In this interview he said that digital coins are replacing gold. According to his words: "All currency is ... based on trust. If you don't trust paper currency, historically what you've done is you dumped paper currencies [and] you bought gold," he said. "Cryptocurrencies have taken the role of gold at least for younger investors because they don't trust paper currencies."
In my opinion, in fact, new generations are seeing bitcoin as an alternative to gold. Imagine a guy who is between 18 and 20 years old and thinks about investing, so look at the gold and think: "What I can do with this gold bar, I can not do anything with it, I'll have to put it in a safe And lock ... ". With bitcoin, in addition to being scarce like gold, you can transfer anywhere in the world.
Bitcoin was born and lives on the internet, has no borders. Now I ask you: Is not this what makes bitcoin better than gold? I'm not claiming that gold has no role, I'm just trying to show this contrast between generations. After all, gold has as its advantage a great history of use as a reserve of value, besides having been used as currency for millennia. There is great confidence in gold, but this is not an invencible barrier, because the more time passes and bitcoin survives, the more time this factor is sidelined and the more trust in bitcoin and other cryptocurrencies grows (this is Just my opinion and I think we are already seeing this in practice).
One curiosity is the way Damodaran rates bitcoin. To exemplify I highlight a post he wrote in 2014 title: "Bitcoin Q & A: Bubble or Breakthrough? Both! Cult or currency? Both! ".
Link: http://aswathdamodaran.blogspot.com.br/2014/03/bitcoin-q-bubble-or-breakthrough-both.html
What I think very interesting is his valuation approach, where he concludes that since bitcoin is a currency it is not possible to do a discounted cash flow analysis (DCF method, used to evaluate an stock or a company), but it has a price, which is obtained by comparing other currencies, including paper currencies (such as USD). That is, for bitcoin we can apply the same techniques used to determine the value of gold.
In his article he continues to write about the determinants for the price of bitcoin: Who is issuing the currency, what is the degree of acceptance, security, conversion, custody and rate of return, etc. He concludes in his article that a cryptocurrency will play a relevant role in the future, but doesn't know if it will be bitcoin.
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I agree; I do not think bitcoin will be king of crypto in the future. Ethereum will overtake bitcoin in market cap at some point. Then eventually Ethereum will be taken over by something next gen that may not even be created yet...