Business valuation is largely an economic analysis practice. The two main financial statements needed for business valuation are the income statement and the balance sheet. Also, in order to an accurate valuation, there should be between three and five years of historic income statements and balance sheets available.
When it comes to currency valuation, however, it’s not that simple — especially digital currencies like Bitcoin.
There has been a lot of talk about the cryptocurrency and global payment system Bitcoin in recent weeks — and justifiably so. Not only is bitcoin the first ever decentralized digital currency, its stocks have shot up 1,600%, passing $17,000.
“Although it has been thought of as a peer-to-peer payment system, it is evident that bitcoin is gaining more and more legitimacy as an asset class,” said Daniele Bianchi, assistant professor of finance at Warwick Business School. ” Today’s launch of bitcoin futures has the potential to add further momentum and thus increase the appeal of the cryptocurrency to both institutional and retail investors.”
According to CBS News, there is a tremendous sense of skepticism and nerves within the industry as talk about the bitcoin surge being a bubble waiting to burst is widespread in financial circles.
“[Bitcoin] is now officially an investor mania,” said Joshua Brown, a financial advisor at Ritholtz Wealth Management. “Like all manias, when it turns, people are going to be wiped out.”
The Guardian adds that financial bubbles are irrotational and virtually impossible to accurately predict, but investors should remain skeptical.
“Predicting when a bubble will burst cannot use rational analysis,” added Paul Donovan, global chief economist at the Swiss bank UBS. “Ignoring a bubble is the best course of action.”
Thanks to research from the University of Cambridge, it’s estimated that there are currently between 2.9 and 5.8 million unique users using a cryptocurrency wallet, with the majority using bitcoin.
