From the outset, the discussion around cryptocurrencies has tended towards hyperbole. A cursory search on the internet yields no shortage of commentary framed in binaries: Cryptocurrencies — speculative bubble or transformative technology? Ponzi scheme or financial revolution? Opportunity or threat?
Amid this sea of conflicting claims, we are often asked about crypto investing, more specifically Bitcoin (which continues to comprise the majority of the crypto market, see Chart 1). We may not always be right (although we mostly are), but we are always direct and unapologetically blunt: Bitcoin is a speculative asset. It generates no earnings, no cash flow, and its price is determined solely by what the next person is willing to pay for it. As such, conventional valuation frameworks such as discounted cash flow methods are fundamentally ill-suited for its valuation.
