There is some truth in this.
(1) Those who are currently invested in bitcoin and other crypto-currencies want prices to increase because they have skin in the game, (the same reason why if you ask someone for their opinion on a company they hold shares in, the answer is almost always "buy"). This is not wrong, it's just human nature.
(2) Any asset is only as valuable as long as there's a market for it. Liquidity is one of the most (if not the most) important consideration for price discovery i.e. you can claim that an asset should be valued very highly but if there are no bidders, its value is basically still zero.
(3) Regulatory de-centralization incites discomfort. Without a central governing authority on asset pricing (e.g. the US dollar as a globally recognized currency, the LIBOR, etc), pricing becomes anti-transparent and uncertain, translating to ==> risk and volatility (fluctuations in price).
...Huge fluctuations in asset prices often deludes the less sophisticated investor, giving them the impression of being able to achieve outsized returns, i.e. the gambling mindset.
(4) Any financial product in the course of history that has been widely recognized and accepted as a 'store of value' (securities, gold, real estate, etc) is usually created due to demand from the market. This market is 'made' by the creators of the ecosystem - which is essentially made up of the supply side (the folks who need/want the capital), the demand (the folks who want to put their capital to work in order to generate some form of return), and the intermediaries (the folks who want to get paid for facilitating this process).
In the case of crypto, it simply means there needs to be sufficient buyers of the product, in order for a bankable market to exist. Institutions that advocate bitcoin and crypto are only supporting this as long as they are getting economics out of the arrangement. The uncomfortable reality is that: No one seems to be really concerned about how the end users (if any) are using the product as long as there is a big enough market to transact it.
Once a transaction has occurred, the intermediaries would have a successful case of an MVP thereby eliminating some of the uncertainties raised by the naysayers.
Bankers and financial professionals try to measure risk and returns using all kinds of academic and empirical bases - NPVs, IRRs, weighted average cost of capital, etc.
I introduce to you a new way of looking at risk: How much are you willing to lose?
Say you pay $10 to flip a coin. Heads: you get double the amount ($20), Tails: you walk away empty-handed. Now consider that it'll now cost you $1,000,000 to do this. Would you still take the chance?
Mathematical models involving the calculation of risk unfortunately omits the element of human emotion. For many investment decisions in Asia and other emerging markets, emotion is often a huge part of what drives the deal. This is probably the single biggest reason why your complex DCF and bullet-proof-calculated discount rates don't weigh very much in this part of the world.
Mispriced deals exist all the time because the stakeholders can't accept what they possibly could stand to lose.
Consider a scenario in which a business owner will never relinquish a partial stake in the company to an incoming buyer who has plans to break up the assets and change its corporate direction. Or a seller signing off on an under-valued transaction just to close the deal because he/she can't live with the possibility that there might not be another better offer on the table.
All risk models break down when you have everything (or nothing) to lose. Managing it gets easier when you are more diversified and don't go to the negotiating table with an all-or-nothing mentality.
The next time you are presented with an opportunity that offers a certain rate of return, think: what are you prepared to lose?
With so much negativity around closed-up economies, city lockdowns, finding a vaccine, one can't help but wonder why valuations - especially for tech firms - are sky rocketing.
Long term over short term
In any asset pricing exercise, there are two fundamental parameters to look at: future free cash flows and the discount rate.
The future free cash flows of the assets are whatever anyone thinks it to be: three, five or even ten years out. The discount rate addresses the question of "what is my expected return for purchasing a certain stock vs putting my money into a safe haven such as a government bond".
If you look at consensus data over the next 12 months, nearly every analyst on Wall Street is predicting a decline in revenue and earnings, for a good reason - sluggish economic growth, deferred order books, and overall lower discretionary spending. This indirectly tells us that:
The performance of the NASDAQ shows that no one is bothered with what happens over the next 12 months when it comes to valuation.
Because investors are not relying on the near-term outlook for guidance, the pricing of today's tech stocks are driven by one of the two:
Future cash flows over the longer term, or
Just pure hokum.
If you think about it intuitively, valuing businesses based on the data estimates looking out 3 to 5 years becomes a more viable alternative because no one can meaningfully price any business under circumstances today. Times are unprecedented; It is an anomaly, a black swan scenario. Applying the 1-year forward multiple to value a business just does not make any sense. This is similar in 2000 where the surge in prices of technology and Internet firms resulted in many investors rushing in to cash-in on the tremendous growth opportunities offered.
Therefore the pricing observed in the current market is a reflection of investors projecting incomes based on estimates 2 to 3 years out. The DCF models are for 10-years and they are willing to pay even if the earnings today were crappy.
Discount rates reflect opportunity costs
Government bonds have been widely accepted as the basis for pricing assets. It is considered to be default-free and therefore commonly used as the "risk-free" rate in valuation models. All cash flow valuation models that use the discount rate are based off this simple concept. At the peak of the dot com bubble, the 10-year treasury yield - which was the benchmark for a "safe haven" and a default-free investment - hovered at between 5 to 6%.
At some point of time, investors started to doubt the rich valuations of these Internet firms, and decided they were much better off putting their money in either government bonds that gave decent returns of 6.0%, or invest in the broader market, represented by the S&P 500. One thing led to another and the bubble burst.
The key difference between 2000 and now is that treasury yields today are trading at 0.72%. Which means that investors who decide to cash out from their richly valued stocks get effectively next to nothing if they buy bonds or other fixed income instruments. That, in part, is what is keeping the bubble inflated today.
In addition to that, city and country wide lockdowns from the pandemic have posed a serious risk for global trade and growth. Essentially, no trading = no growth. No growth = no inflation. To climb out of this economic rut, governments around the world have committed to keeping the near-to-mid-term interest rates low (read the Fed's recent announcement in August about its inflation rate policy).
So it is against this backdrop of a grim economy, the lack of other options in putting money to work and choice of taking a much longer term view on cash flows, that many investors are dumping money in equities.
As I am writing this, I do realize that there are wide ranging perspectives from different people out there, as well as numerous datasets that when aggregated and analyzed, could also be used to explain the current phenomenon. But the market is irrational, inefficient, unpredictable. And I have never been a good trader. Only time will tell if we are in the early stages of a new age of growth or if bubble will eventually burst.