An academic commonly known as Wall Street’s “dean of valuation” has stressed that bitcoin, while a currency, needs to be widely used to justify its soaring prices.
Aswath Damodaran, a professor of corporate finance and valuation at New York University’s Stern School of Business, discussed bitcoin’s functionality as a digital currency usable for daily transactions rather than a store of value rewarding investors who bet on the cryptocurrency.
Bitcoin hit a new all-time high of $6,200 less a week ago and is firmly under the mainstream’s spotlight as an high-returns investor asset, gaining over 6 times its value at the turn of the year. For Damodaran, the discussion surrounding bitcoin making big gains in value should take a turn toward its usage as a transactional currency instead.
Speaking to CNBC ($), the academic said:
I think the better path for bitcoin is to actually make it a digital currency, a currency that you and I can take on our travels and use actually to buy stuff and sell stuff. If that happens, then I’m OK with the pricing.
In a blog post yesterday, Damodaran disagreed with JPMorgan Chase CEO Jamie Dimon’s take on calling bitcoin a ‘fraud’ and went on to underline bitcoin is, first and foremost, a currency. Not an asset, commodity, or a collectible.
I will argue that bitcoin is not an asset, but a currency, and as such, you cannot value or invest in it. You can only price it and trade it.
“Bitcoin is a not an asset, since it does not generate cash flows standing alone for those who hold it,” he explained. “It is not a commodity, because it is not raw material that can be used in the production of something useful.” In the best possible scenario, the valuation expert sees bitcoin becoming the global digital currency or the 21st century tulip bulb, in its worst case. Or, somewhere in between as ‘gold for millennials’ with an implicit distrust for central banks, governments, and fiat currencies.
Damodaran also argued that bitcoin isn’t a good currency yet, not until it gains wider acceptance for everyday utility.
“Right now, it’s not a very good currency. I couldn’t use it in transactions in much of the world,” he added. “It’s not a good currency because it’s not a good medium of exchange and it’s not a good store of value simply because it’s much too volatile.”
“Could it be a good currency? Absolutely” he continued, before stating:
A good currency is not something you boast about how much money you made. A good currency is something you use to transact. Right now, all the discussion of cryptocurrencies seems to be about how much money you can make betting on the currency, not about how good a currency it is.