Aswath Damodaran, a professor of finance at the NYU's Stern School of Business, Wall Street's "Dean of Valuation," has come up with something that I think is very useful for anybody who has anything to do with Bitcoin and cryptocurrencies. I think his insight will help traders, investors, regulators, politicians and businesses.
I think this is important because many are confused. Tax offices are trying to restructure tax laws treating Bitcoin as though it is an asset. But the come across problems where we are supposed to calculate taxes every time we use Bitcoin to pay for pizza or coffee. Some in the Bitcoin community think that Bitcoin should act more like gold as its use case and place its functions as a currency to be a secondary priority. But as we can see, Bitcoin has to function as a good currency to be of any value.
I'll add the link to his original blog and his video below but I'll just summarise what I think is most important. Financial items can be categorised in four categories:
He says Bitcoin is not an asset because it does not generate income. A house, for example, is an asset because you can rent it and you can receive rent income. He says Bitcoin is not a commodity because it is not a raw material like rice, seeds or grains. Collectibles are like paintings. Critics of Bitcoin see it as a collectible. Aswath thinks that Bitcoin is more a currency. You cannot value it and invest in it. But you can attach a price to it and trade it.
What this means to all of us?
1. We cannot value Bitcoin. Let's not waste our time trying to value it.
2. You trade Bitcoin, not invest in it.
3. Bitcoin must succeed to be currency for it to have any value. This is very important especially given the current issues around scaling Bitcoin at the moment.
I think this is a breakthrough and it helps all of us, from traders to investors, developers to users, from regulators to businesses, understand what it is we are actually dealing with so that we can make better decisions in whatever we do.
- Original blog post is here.