Topic: Bitcoin Slammed Again - NYU Professor featured in Australian media (Read 1407 times)

As a means of payment, the fact that you have to calculate prices of purchases with amounts such as 0.00301 Bitcoin or “3.01 Bitcoin times 10 to the minus 2” effectively means it is never likely to become a unit of account.

So who/what made him an expert on Bitcoin? So far I rate his opinion only slightly higher than fallling.

... the professors expect to address the risk and insurance implications of virtual currency activity, since investors currently can’t insure themselves against theft or hacking on bitcoin marketplaces the same way they can at a traditional FDIC-backed bank. Some companies are trying to build such insurance products, and governments must decide whether to provide security for a currency that, in some ways, competes with their own.

Yermack expects to pack the 50-seat room currently reserved for his class, but he knows the currency’s popularity might be fleeting and, if its value crashes to just $5 or $10 between now and August, interest in the course could evaporate.

“The trajectory of bitcoin is going to be crucial” to whether the class actually happens, he says.

Starting to assess bitcoin from an academic angle while the currency is still in its infancy allows Yermack and Miller to set the agenda for future study of the subject. “You can help shape the field by stipulating what you think the important topics are,” Yermack says. “For an academic, that’s fun.”

I would not invest in Bitcoin if you're looking for a rate of return. I don't think you could consider it a good investment, especially for a poor household in a developing country that may not have much savings. Bitcoin is incredibly risky and there is no intrinsic value behind it. If you invest in a stock, there is a company paying dividends that supports the value of a stock. If you invest in a government bond, you have the government's promise to pay interest; with Bitcoin, all you really have is hope.

David Yermack, finance and business transformation professor at New York University’s Stern School of Business, notes that critical to the survival of a cyber-currency is government support. “I am skeptical that any form of money will be successful if it is not backed by a sovereign government. Without this sort of foundation, a currency really cannot be a form of property because it cannot be pledged as collateral, foreclosed upon, reassigned in bankruptcy and so forth,” he says. “This will make it unattractive in a wide range of commercial settings.”

“Governments can try to ban [Bitcoin], but unless they literally control every communication over the Internet, it seems impossible to prevent transactions.” –Ali Shourideh

In a recent working paper, Yermack wrote that Bitcoin does not behave like a currency according to criteria used by economists. Money should be a medium of exchange, a unit of account and a store of value. Bitcoin meets the first criterion because more merchants are accepting it as payment. But as a unit of account, it performs poorly because it requires businesses to quote prices to the fourth or fifth decimal place led by zeroes, which is impractical. Bitcoins also are quite volatile, with different exchanges quoting different prices without giving investors the ability to arbitrage. Finally, Bitcoin is a poor way to store value because it faces “rampant” hacking attacks and thefts, he points out. It also has virtually zero correlation to major currencies, so its value is “completely untethered” to them, making its risks “nearly impossible to hedge for businesses and customers and [rendering] it more or less useless as a tool for risk management,” according to Yermack.

“Either this was a very clever piece of disinformation or a very careless error by the government. It’s a little hard to know which from a distance,” David L. Yermack, a professor at New York University’s Stern School of Business, said of the leak. “You want to create the illusion that there’s immense demand for this if you’re the government because you want people to bid as much as they’re willing to.”

Experts are divided on what information about Mr. Draper’s bid, if any, can be gleaned from the price increase. Losing bidders may be driving up the price because they know there is significant demand for the coins at a higher price. The increase could also be the result of interest in the auction itself, said David L. Yermack, a professor at New York University’s Stern School of Business.

“Just the fact that there was such broad demand would tend to push up the value of Bitcoin,” he said.

As a final taunt to the Bitcoin faithful, Professor Yermack suggests the entire Bitcoin mining effort could be subverted by a person or government - such as Vladimir Putin - taking control of the peer-to-peer network that essentially validates every transaction.

i don't find anything he said in that article to be too outrageous.. he seems fairly reasonable. only problem is his "in 6 months" prediction, which drew the ire of many bitcoin evangelists.

Professor David Yermack of the Stern School of Business at New York University is used to being heckled when he gives talks about Bitcoin. After all, most of his work has involved pointing out all of the things Bitcoin enthusiasts don’t want to hear.

In looking at the way Bitcoin is used (or not) as a medium of exchange, he points out the number of daily transactions of Bitcoins has fundamentally not changed in the past year.

As a means of payment, the fact that you have to calculate prices of purchases with amounts such as 0.00301 Bitcoin or “3.01 Bitcoin times 10 to the minus 2” effectively means it is never likely to become a unit of account.

Professor Yermack’s research on Bitcoin volatility found it displayed an average 10% price change per day with an overall volatility of 142% over the course of a year.

As a final taunt to the Bitcoin faithful, Professor Yermack suggests the entire Bitcoin mining effort could be subverted by a person or government ... In all likelihood this would be possible, but more research is required to convince the Bitcoin community of the validity of the argument.