A good currency is the one that is used to buy things and on that count, bitcoin has failed, says Damodaran.
Professor Aswath Damodaran is unimpressed with bitcoin and believes it has failed as a measure of a good currency, something that can be used to buy coffee, a house or even a car.
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Damodaran, one of the finest minds on valuation and markets, weighed in on cryptocurrencies during the 10th episode of Moneycontrol Masterclass.
"If bitcoin is a good currency, my question is, why aren't more people using it in transactions. So when I run into bitcoin enthusiasts, they seem to push this notion that bitcoin is a great currency because they've made a lot of money on it. That's not my measure of a good currency," he said.
A good currency is the one that is used to buy things and on that count, bitcoin has failed, he said.
"A good currency, in my view, is one that used to buy coffee, buy your house, buy a car, and on that count, bitcoin has failed, and not just failed, it's failed miserably,” he said.
Damodaran was also dismissive of cryptocurrencies as an asset class. An asset class needs cash flows, he said. Bitcoin failed to act as a good hedge, the way gold does in one's portfolio, Damodaran said.
"Gold's biggest claim to fame is that when stocks collapse, gold holds its value. If I use the same test on bitcoin and I look at 2020, bitcoin didn't behave like a collectible. It behaved like a very risky stock. Put simply, if I add bitcoin to a portfolio of stocks, I'm just adding something that makes my portfolio even more volatile,” he said.
Damodaran's comments come at a time when there is a lot of regulatory uncertainty in India around cryptocurrencies.
There are approximately 1.5 crore Indians who have invested in cryptocurrencies, amounting to Rs 15,000 crore. There are 350 startups that operate in blockchain and crypto.
While the government plans to introduce this year in Parliament a bill to regulate cryptocurrencies, the RBI has repeatedly cautioned investors about the high risk in crypto trading.