Prof. Aswath Damodaran: Bitcoin (BTC) has “miserably failed” as a currency

Fri 02 Jul 2021 ▪ 18h33 ▪ 3 min read — by Matthieu Palois

Aswath Damodaran, Professor of Finance at New York University’s Stern School, has always been sceptical about Bitcoin. However, his recent announcement sent shock waves through the crypto world. In episode 10 of Moneycontrol Masterclass Programme Professor questioned Bitcoin’s status as a “good currency”.

Bitcoin: a “good currency”?

In terms of market capitalisation, Bitcoin can be considered as a currency. Recently, BTC has suffered a sharp drop. Its price plummeted by 30% to about $30,000.

However, as Damodaran claimed, market capitalisation growth is not an appropriate indicator of Bitcoin’s success.

Professor considers a good currency to be the one that can be used in microtransactions: “A good currency, in my view, is one that’s used to buy coffee, buy your house, buy a car, and on this count, Bitcoin has failed, and not only failed, it has failed miserably.”

From this point of view, it would be quite challenging to prove Aswath Damodaran wrong. In fact, these days people don’t use Bitcoin in everyday transactions. Damodaran highlighted that BTC enthusiasts consider it a good currency because “they’ve made a lot of money on it.”

At this point, Professor stated that Bitcoin is taking the form of a speculative investment. Earlier in April, Damodaran identified volatility and high transaction costs as major challenges to Bitcoin’s viability as an exchange currency.

Bitcoin to become a new benchmark?

Now, crypto investors use the US dollar as a benchmark, which means Bitcoin’s value is based on its price against the US dollar.

What if everything was the other way round? Maybe, one day the US dollar, euro and other national currencies will use Bitcoin as a benchmark. Time will tell.

Nowadays, cryptocurrencies have to show a more stable result if they long to gain the trust of the general public. Bitcoin’s price fell below $32,000 from more than $61,000 in just two months. At this point, it’s clear why BTC can’t be considered as a reliable medium of exchange.

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Matthieu Palois avatar
Matthieu Palois

Mon intérêt pour les nouvelles technologies m’a téléporté dans l’univers blockchain. Dimension à la fois complexe et tellement vaste que mon cerveau a d’abord réagi en mode "Error 404" frôlant la faille spatio-temporelle avant que j’en comprenne peu à peu les codes. Le chemin est encore long avant d’obtenir le salut du dieu Crypto, mais en attendant j’en profite pour partager ma passion avec vous.


The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.

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