Accounting for cryptocurrency exposure in equity valuation
Curious to see what others on the forum think about this, as it’s something that perhaps will be a more frequent conversation within equity valuation circles (and maybe even sooner for those in EMs).
Here’s a rather extreme case: say that starting tomorrow Amazon starts accepting Bitcoin as a form of payment on their site, and within a few months their sales settled in Bitcoin account for 20% of revenues. Presumably, the riskiness of their business would rise, in that the volatility of their revenues when translated to USD would increase markedly.
How would you go about accounting for this added layer of risk when building, say, a DCF model for Amazon? Would you try and capture it in the discount rate used for the cash flows, or maybe explore some sort of scenario analysis that models for crisis in cryptocurrency markets and all the uncertainties regarding regulation, cyber security, etc?
Financial literature is pretty good at dealing with this when you’re talking about valuing companies whose revenues come from different currencies issued by government bodies… but not so much with something decentralized like what cryptos are predicated on.
And, it’s already happening in some capacity: http://www.businessinsider.com/5-big-companies-that-currently-accept-bitcoin-2017-7/#overstockcom-1
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