‘Why Aswath Damodaran, a valuation expert, is skeptical about the potential of Bitcoin’
Valuation Guru Aswath Damodaran Shares Insights on Cryptocurrency and Tech Sector Rally
In a recent podcast with NYU Professor Scott Galloway, Aswath Damodaran, a renowned valuation expert and Professor at Stern School of Business at New York University (NYU), discussed his views on the cryptocurrency market and the historic rally in the tech sector.
Damodaran expressed skepticism regarding the adoption and behavior of cryptocurrencies, particularly Bitcoin, during the conversation. He remarked, “Bitcoin is the currency that nobody uses and a collectible that doesn’t behave like a collectible.” He highlighted the volatility and inconsistency in Bitcoin’s behavior, noting its deviation from traditional investment principles. Additionally, he questioned its role as a hedge, stating, “It’s gone up as stocks have gone up, and it goes down when stocks go down. This is not the way a collectible is supposed to behave.”
The valuation expert also provided his perspective on the tech sector’s historic rally in the first half of the year. He noted that the rebound was driven by a concentration of larger tech companies that are profitable, distinguishing it from the risk capital influx observed in previous years. He emphasized the importance of recognizing the companies’ resilience and profitability, stating, “It looks like a tech comeback, but it’s a very different comeback than the drawdown we saw last year. It feels like animal spirits are coming back into the markets. There’s some of that and some of the recognition that these big tech companies have incredible amounts of buffer, that’s what we realized last year that you could lay off 10,000 employees without a dent to your revenues.”
Damodaran also highlighted the tech companies’ ability to maintain profitability while reducing costs, stating, “They built up a lot of fat on the way up. I think that these tech companies have had an incredible amount of fat to burn off and as they’ve burnt it off, the markets have recognized they still stay profitable and deliver the margins they used to with a lot fewer people employed.”
The valuation expert’s insights shed light on the current state of the cryptocurrency market and the tech sector’s performance. His skepticism towards Bitcoin’s behavior and his analysis of the tech sector’s rally provide valuable perspectives for investors navigating these markets.
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