Valuing Three Cryptocurrencies: Bitcoin, Ripple, VeChain

Length: 8 A4-pages maximum, excluding the cover page and excluding up to 4 pages of appendices and references. Font size: 12-times Roman (or equivalent), line and half spacing. Referencing Harvard style.

As at 11 March 2018 value is approximately

1 Bitcoin (BTC) = AUD 12,284.90 = USD 9,561

1 Ripple (XRP) = AUD 1.07 = USD 0.84

1 VeChain (VEN) = AUD 4.87 = USD 3.82

1 AUD = USD 0.79

Specific Requirements:

(a) Provide your best estimate of the value, in US dollars, of Bitcoin, Ripple, VeChain and the Australian dollar as at the following dates: 28 May 2018, 31 December 2018 and 9 May 2023. Justify your valuation. (Weighting: 70% of assignment mark)

(b) Nobel prize winning economist Robert Shiller has called Bitcoin a fad. He thinks the valuation of Bitcoin is a manifestation of a "bubble". Shiller thinks the same about gold. He is quoted as saying: " "I think gold is a bubble, but it's always been a bubble, it has some industrial uses, but basically it's like a fad that's lasted thousands of years."

Source: CNBC News 16 October 2017 Critique the argument that Bitcoin Ripple and VeChain and gold are fads and their pricing reflects a "bubble". (Weighting: 30% of assignment mark)

Guidance:

Cyrptocurrencies are an innovation stemming from recent advances in financial technology ("fintech"), in particular "blockchain" technology. The first part of this assignment requires you to value three cryptocurrencies. The second part requires you to assess the view that cryptocurrencies (and gold) reflect a "bubble".

Part (a): The price of any asset, including cryptocurrencies and the Australian dollar, reflect the forces of supply and demand. Forecasting the value of a particular asset therefore requires one to judge whether supply will outpace, lag or equal demand over the period leading to the date for which one is forecasting value. Students should provide an introduction to each cryptocurrency and its function in the market. In rationalising the cryptocurrency, one may justify value by identifying the particular market that will be served by the cryptocurrency, the size of that market, and the expected growth of the market.

Your assignment should explain why a cryptocurrency is useful in the particular markets it is expected to  Investment Analysis: "Valuing Three Cryptocurrencies" Assignment 12 March 2018 Page 2 of 3 serve.

If you find there are different valuation methods or approaches to cryptocurrencies then you should identify those you consider most reliable and explain why. Students should also investigate contemporary valuation methods in attempting to value cryptocurrencies. Students should address the issues in using these methods, and whether they can create an alternative methods for valuing crypto-related businesses.

Part (b): Is the demand for cryptocurrencies largely reflective of a bubble? In answering this question you should consider the definition of a bubble (which may seem obvious but it is more difficult to pin down than one might expect). It is possible that the valuation of cryptocurrencies or indeed any currency and any asset may be partly a function of "bubble" demand and partly a function of "real" demand and supply. More will be said on this question in lectures.