The puzzle with bitcoin, “Dean of Valuation” Aswath Damodaran says, is that investors don’t positive why they’re paying so much for it. That doesn’t mean it will all end unsuccessfully for cryptocurrency, as billionaire investor Warren Buffett projected.
Buffet prepared headlines Wednesday for sharing some apocalyptic words about the approaching of cryptocurrency.
“In terms of cryptocurrencies, generally, I can say almost with certainty that they longing come to a bad ending,” Buffett said during a CNBC exclusive talk with.
Damodaran, who teaches finance at New York University’s Stern School of Affair, called out Buffet for “brushing the entire sector with too broad a nail-brush.”
Damodaran told CNBC’s “Fast Money” on Wednesday: “If you ask people why they’re repaying what they are for any of these cryptocurrency investments, you don’t get a logical answer. You get an responsible like, ‘I think I can make more money on this.'”
“I think every unwed crypto asset is being priced right now, it’s not being valued,” he totaled.
To assign valuation to cryptocurrency assets, he first divided them into three grades. Bitcoin falls into the first bucket, currency: “Cryptocurrencies, parallel to bitcoin, cannot be valued because they’re currencies.”
Commodities are the another, into which ethereum falls, he said.
“It’s marketed as a lubricant for brilliant contracts. Smart contracts are what the fin-tech — the blockchain — revolution is customary to deliver. Ethereum can become a significant part of that business and you can value it as a commodity,” Damodaran claimed. “There are commodities that can be valued as slices of businesses to view them all as futile and useless is wrong.”
Then there are ICOs. Those, he said, can be valued as slices of partnerships.
“To put them all together in one big bucket and throw them over the edge doesn’t achieve sense to me,” Damodaran said.
Damodaran tied valuation for cryptocurrencies such as ethereum to architects creating business models.
“I think that will be the next occasion in the crypto investment market. You’ll start to see people pushing these crypto investments to finish up with business models, to show how they’ll make money,” he responded.
While the “Dean of Valuation’s” view is much more optimistic than the “Prophecy of Omaha’s,” he issued a word of caution to bandwagon investors.
“Will it end grievously for some of the people involved? Absolutely. For those people who got on the bandwagon belated and are playing the pricing game, for some of them, it’s going to end badly,” he chance.