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

Which of the following is the most likely reason that the value of a proof-of-work cryptocurrency such as Bitcoin is difficult to estimate using discounted cash flow analysis?

The most likely reason is that a cryptocurrency like Bitcoin has no contractual or residual cash flows to discount. Without earnings, coupons or dividends, the discounted cash flow approach has no inputs, so valuation relies on other approaches such as cost of production or network-based models.

  1. AIt has no contractual or residual cash flows to discountCorrect
  2. BIt is traded on exchanges around the clock
  3. CIt is recorded on a distributed ledger

Explanation

A cryptocurrency generally does not produce contractual cash flows, earnings or a residual claim, so there is nothing to discount. Round-the-clock trading and use of a distributed ledger do not prevent cash-flow valuation of other assets.

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