Mark Williams on WBUR, Washington Post & More: Beware of Bitcoin

in Faculty, Faculty in the News, Finance, News
December 5th, 2013

Real value is created through meaningful innovation and adoption—not from smoke and mirror deception

Mark T. Williams, Boston University School of Management executive-in-residence and master lecturer of finance, warns against the peer-to-peer electronic payment network Bitcoin in a wide range of media commentary, arguing that investors across the globe should steer clear of this “dangerous speculative bubble” and its “get-rich-quick mindset.”

Excerpts from Williams’s commentary for WBUR MarkWilliams (Dec. 5, 2013):

Bitcoin is not a futuristic currency but a speculative mania. Greed is pushing prices skyward but fear will quickly bring those same prices crashing back to earth. Investors need to separate the promising technological innovation of digital currency from the Bitcoin Ponzi scheme that will harm those that fail to exit before the bottom falls out.

Bitcoin is another example of “market innovation” that deserves closer scrutiny from the Securities and Exchange Commission. SEC Chairman Mary Jo White has said virtual currency itself may not be considered a “security,” but interest issued or returns gained by it likely would be and therefore subject to regulation. Federal Reserve Chairman Ben Bernanke told Congress that the Fed “does not necessarily have authority to directly supervise or regulate these innovations.” And the Justice Department says Bitcoin is legal, but that doesn’t mean it is adequately market tested, investment safe and ready to be a global currency.

Bitcoin is not a currency with intrinsic value but a hyper bubble fueled by a get-rich-quick mindset.

Excerpts from The Washington Post blog “The Switch” (Dec. 10. 2013):

In recent weeks, some Bitcoin critics have been rethinking their initial Bitcoin skepticism. But others are as convinced as ever that the cryptocurrency is doomed. One of the harshest critics is Mark Williams, who teaches finance at the Boston University School of Management. He predicts that in the first half of 2014, bitcoins will lose almost 99 percent of their value, falling below $10.

Timothy B. Lee: What informs your thinking about the future of Bitcoin?

Mark Williams: I used to be the senior vice president of a commodity trading firm in Boston. I’m very familiar with commodity prices with high volatility. For example, energy prices would have swings of 400 to 500 percent in a year. That’s significant price movement.

But Bitcoin is in a universe of its own. Right now Bitcoin is looking at price movements as high as 8000 percent since January. It moved from $13 per bitcoin to a high of $1200. So what we see then is considerable risk associated with Bitcoin.

At least with a commodity like power, natural gas or oil, there’s an underlying value. That product can be used for something. With Bitcoin, it’s a virtual commodity, so there’s no backing. In essence, Bitcoin is worth something as long as you or I are willing to sell things for it. But if you say I’d rather have $1,000 than a bitcoin, Bitcoin is going to drop like a rock.

Excerpt from Williams’s interview on “Bitcoin’s future in Europe and the US” for The Voice of Russia (Dec. 20, 2013):

Bitcoin…has too much movement to be used as a medium of exchange….With any currency, you have to have trust in that currency, and you have to have stability….In the last two weeks, we’ve seen a drop of almost 50%. It’s almost like a roller-coaster out of control.

Read the full WBUR commentary and Washington Post interview, or listen in on Williams’s full radio interview on The Voice of Russia.