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CFA Level I · CFA Level I Exam · Introduction to Digital Assets

Which of the following characteristics most likely makes valuing a cryptocurrency such as Bitcoin more difficult than valuing a typical operating company's equity?

Valuing a cryptocurrency like Bitcoin is harder because it generates no cash flows to discount. Without dividends, earnings or coupons, standard discounted cash flow models do not apply, so analysts use alternative approaches such as cost of production, network-activity metrics or comparisons with other assets.

  1. AIt generates no cash flows that can be discountedCorrect
  2. BIt is traded only on regulated exchanges
  3. CIt has a fixed legal maturity date

Explanation

A non-yielding cryptocurrency produces no earnings, dividends or coupons, so standard discounted cash flow models cannot be applied directly. Valuation relies instead on approaches such as cost of production, network-activity metrics or comparison with other assets. The other options are not features of these assets.

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