Mark T Williams on the Flaws and Opportunities of Bitcoin
Mark T Williams isn't shy when mentioning his "steed" – the unassuming white bicycle parked in front of the Noodle Street cafe in Boston, Massachusetts, shining in the sun near some melting remnants of the winter's snow.
He diverts attention to it: wanting me to know that it's a choice model; that it would be complemented should the right person stop eating their pad thai, look through the smudgy window above our corner table and notice it. He goes on about it, telling me it's just one of his bikes, that the others are built for snow, for harsh conditions.
If it's his way of directing questions away from himself, it isn't exactly effective. You can surmise a lot about a person, particularly a capital markets professor, from the temperatures they're willing to suffer as they bike through traffic-laden streets.
As soon as this question arises, though, a waitress arrives and Williams is suggesting the pineapple fried rice, donning an impish grin. It would be the first thing you'd notice about him, this air of general amusement, if he's wasn't wearing a full lycra biking outfit, complete with the biking shoes. Distracted, I order the fried rice.
In hindsight, I shouldn't have been surprised by Williams' physical presence. The Boston University faculty member and published author is known for invoking strong reactions. He is, after all, the bane of bitcoin message boards, the reigning king of bitcoin bad-mouthing, the most boastful of all of bitcoin's blustering haters.
For the uninitiated, Williams rose to prominence around the time of the New York Department of Financial Services hearings on virtual currencies in January. He was a late addition, not even on the original schedule.
If his attendance didn't turn heads, his statements did, when he notably claimed bitcoin to be tremendously overvalued, and predicted it would crash to the single digits in value this year.
The backlash was swift, and TV networks and news outlets ate it up, rushing his comments to print.
It's clear what Williams adds to the conversation: he's the one needling the balloon. What's less clear is what's in this for Williams, what does he get out of playing with the needle?
Pete Rizzo: So, I think we were on the subject of you being a hater ...
Mark T Williams: In general, I think it's easiest to put people in boxes, saying someone's pro and someone's con, or someone's a hater and someone's not.
Markets don't function well when there isn't good information. I always felt that bitcoin had the upper hand, and that the markets weren't transparent. I think regulation creates that transparency. I always felt consumers were disadvantaged. I don't think I'm a hater, I think I'm an advocate for consumers who want to buy virtual currencies.
In my hearing, I warned about a lot of unaddressed risks and some of those are coming true.
If you read my testimony, I spent a lot of time talking about the exchanges, and what does Mt. Gox do? Blows up. So that's it – I'm not a hater.
“I think I see virtual currencies as something of the future.”
Rizzo: Well, Warren Buffett seems to agree with you.
Williams: Yeah, his number two guy, Charlie Munger, he was asked about bitcoin. He said it's "rat poison". I went on TV, or Fox or Bloomberg; I said it's not rat poison, that's not fair.
I think people when they buy into bitcoin, they think they're buying into a movement. It's emotional, right? Not only is it a physical investment, but an emotional investment, and I think that's what I've spurred a lot of resentment about.
People just look at me, and they say "Why doesn't this guy get it?"
Rizzo: Do you read the comments?
Williams: Sure, some of them are ridiculous. I get people who send me emails.
If you're a smart investor, you want to look at those who are in your camp, but also those with dissenting views, sometimes you can learn a lot from the counter argument.
Rizzo: So, is your goal to make bitcoin better?
Williams: I think I see virtual currencies as something of the future.
Rizzo: Just not good right now?
Williams: I think there are a lot of design flaws, I wrote a piece for Business Insider, and I said that bitcoin's DNA is flawed. I'm not talking about the block chain. I describe bitcoin as the locomotive and then there's the payment system itself. The payment system is the rails. What I think we've seen here is that we were told that the infrastructure was strong through January, and Mt. Gox showed us it was weak.
Rizzo: It seems like they were using their own implementation of the protocol.
Williams: Infrastructure is much wider. The infrastructure is not just the peer-to-peer, the infrastructure is all those people that have bolted on to the exchange. What I'm trying to articulate is that the highway itself today has a lot of third-parties.
The system can only be as strong as the weakest link. Mt. Gox was weak ...
Rizzo: So, let's say you're Mark Karpeles and you're running a trading card exchange, and, over the course of a year, your firm becomes a multi-billion-dollar company, can you really blame the guy for not implementing enterprise-grade consumer protections?
Williams: He should have. He should've cared about his customers. It was a black box, and it will come out – he did a lot of fraudulent stuff, because he had control of the information. As a consumer, when you bought, he not only got a fee for the transaction, but he got to see the transaction history throughout the day.
I'm sure he cooked that, I'm sure he also set the price for his exchange. I did a lot of analytical studies of that exchange, and it was always 8% to 10% higher than other exchanges.
Why is that? If he was having financial problems, by putting the price higher on his exchange, he'd encourage more people to come.
Rizzo: It seems that by limiting the number of people who could leave, more people stayed in, and that the price became higher, so people took advantage of that.
Williams: Well, if you run an exchange, and you can keep on moving the price up, then you're encouraging more business. I call him a boiler-room broker. If you house that broker function, you're not an exchange.
Coinbase has three businesses it's doing right now, and one of its functions is a conflict of interest. They're trying to reduce price risk for people like Overstock, yet they're trying to be an exchange on the other side.
Rizzo: There's a lot of opportunity in the space right now.
Williams: Yeah, but there's conflict. I think you have to have controls in place to make sure consumers can't be taken advantage of.
Rizzo: So, if you had a chance to redesign the system, what would you do?
Williams: I'll leave it to the computer geniuses, but it needs to be regulated. State banking examiners are going to regulate it. You're going to have a national financial regulatory body, you're just going to have standards and that's not a bad thing.
This conversation has been edited for length and clarity.
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