FINA3324 individual assignment

Valuing Three Cryptocurrencies: Bitcoin, Ripple, VeChain

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

  • 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)

  • 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)


More guidance on the assignment will be given in lectures. The following is intended to help you get started.

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 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.

You will not suffer from a lack of information and analysis about crypto-currencies. Some news-reports and other material will be placed on the LMS site but this is intended only as a guide. The next few lectures will also include points relevant to the assignment. You are expected to do additional research in identifying other relevant material.

Your challenge will be integrating all the available material, weighing up the sometimes contradictory evidence, and providing a well-reasoned conclusion as clearly as possible. Talk with as many people as possible. Probably the best persons are your peers doing the unit. The more you engage with the material and the earlier you start writing (and revising) the assignment, the more benefit you will get out of it. What you should aim for is a clear, well set out piece of analysis that is easy to read with a well-argued conclusion. Don’t confuse certainty for clarity. You may be tempted to downplay some evidence against your forecast or conclusion because it makes your predicted outcome less obviously the right one. This is a mistake. Recall the point about being even-handed and thorough as reasonably practical in your analysis.

Length: Part (a) and (b) should be 8 A4-pages maximum, excluding the cover page and excluding up to 4 pages of appendices and references. Part (b) need not take more than one page so you will have seven pages for part (a). Font size: 12-times Roman (or equivalent), line and half spacing. Referencing required (see guides below).

This is an individual assignment. The assignment should be written by you alone but you may discuss it with others. In the cover page, include the list of all fellow students with whom you have discussed the assignment. It’s OK to discuss the assignment so you won’t be disadvantaged by writing a long list of students with whom you have talked about the assignment. Smart people try to get as many different points of view as they can before arriving at a decision.


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