EXCLUSIVE | Bitcoin Has Not Just Failed, It’s Failed Miserably: Valuation Guru Aswath Damodaran

Professor Aswath Damodaran doesn’t like bitcoin. He believes that it is not a good measure of a currency. It can be used to purchase coffee, houses, or cars.

Damodaran, one the most respected minds in valuation and markets, spoke out on cryptocurrency during the 10th episode Moneycontrol Masterclass.

“If bitcoin is a great currency, I wonder why not more people are using it for transactions. When I meet bitcoin enthusiasts, they push the notion that bitcoin is a great cryptocurrency because they have made a lot of cash on it. He said that this was not his measure of a currency.

He said that a good currency is one that can be used to purchase things.

He stated that he believes bitcoin is a good currency because it can be used to buy coffee, purchase a house, or buy a car. However, the latter has failed and failed miserably.

Damodaran also dismissed cryptocurrencies as an investment class. He said that an asset class requires cash flows. Damodaran stated that Bitcoin did not act as a hedge like gold in one’s portfolio.

“Gold’s greatest claim to fame is its ability to hold its value even when stocks fall. I used the same test to determine bitcoin’s behavior and I looked at 2020. Bitcoin behaved like a collectible. It was a very risky stock. He stated that adding bitcoin to a stock portfolio is just adding another risky asset.

Damodaran’s comments are made at a time of great regulatory uncertainty in India regarding cryptocurrencies.

About 1.5 crore Indians have made investments in cryptocurrency, which amounts to Rs 15,000 crore. There are 350 blockchain- and crypto-focused startups.

The government is planning to introduce a bill this year to regulate cryptocurrency trading. However, the RBI has warned investors repeatedly about the high risks involved in crypto trading.