Aswath Damodaran Says Digital Currencies Are Replacing Gold

Aswath Damodaran says cryptocurrencies have already replaced gold for younger investors and predicts digital currencies will eventually become as important as the major fiat currencies.

Damodaran said in a recent CNBC interview:

“All currency is … based on trust. If you don’t trust paper currency, historically what you’ve done is you dumped paper currencies [and] you bought gold. Cryptocurrencies have taken the role of gold at least for younger investors because they don’t trust paper currencies.”

Cryptocurrency prices are surging this year. The ethereum cryptocurrency is up more than 2,400 percent year to date (while bitcoin is up more than 140 percent this year).

Damodaran defended digital currencies against skeptics who criticized “coin mining” as a misallocation of resources such as computing power and electricity:

“If you think about it, the printing presses that run paper currencies. It’s kind of a useless transaction. You’re just printing paper. In a sense all currency creation, it’s not creating real economic growth by itself. The only reason currencies exist is for us to transact … If a digital currency can do it more efficiently than paper currency can, I think there is going to be a digital currency sooner or later that competes with the major paper currencies. Whether it is one of the existing cryptocurrencies I don’t know.”

Damodaran is professor of finance at the New York University Stern School of Business. He is widely regarded as the foremost expert in valuing companies and is often referred to as Wall Street’s “dean of valuation.”