A former White House budget director said that he believes the bitcoin price will experience a “spectacular crash,” teaching the “really stupid” cryptocurrency investors a serious lesson about how markets function.
David Stockman, who served as the director of the US Office of Management and Budget during the Reagan administration, told CNBC that as astonishing as bitcoin’s rise has been, its decline will be even more meteoric.
“It’s basically a class of really stupid speculators who have convinced themselves that trees grow to the sky,” he said, referencing bitcoin investors. “It will burn out in a spectacular crash. All of these latter-day speculators will have their hands burned to a crisp, and they will learn the proper lesson.”
The crux of his critique was that because the bitcoin price fluctuates so greatly, it is unusable as a currency. Many bitcoin bears have been encouraged by the recent launch of bitcoin futures contracts on regulated exchanges, forecasting that these products could help stabilize bitcoin’s wild volatility and tame it into a mainstream financial instrument. Fund providers and exchanges are currently racing to list the first bitcoin exchange-traded funds (Bitcoin ETFs).
Stockman, however, said that bitcoin derivatives do not lend cryptocurrency any legitimacy but rather provide Wall Street firms with another opportunity to take advantage of ordinary investors who are captivated by the bitcoin price’s rapid appreciation.
“Anytime Wall Street sees an opportunity to shear the sheep, and when they see the sheep stampeding to the slaughter, they line up with some new gimmick to take advantage of the circumstance,” he said. “There is nothing that is being validated by the opening up of a futures market.
Despite these pointed cryptocurrencies, Stockman did not add his name to the growing list of regulatory officials in countries around the globe who believe governments should regulate bitcoin or even subject it to an outright ban (a suggestion, one might add, that reveals an ignorance about the technology behind cryptocurrency.
“I don’t think regulators should do anything about it at all,” he said. “It will take care of itself.
Write to Josiah Wilmoth at josiah.wilmoth(at)CCN.com.
Featured image from Flickr/Gage Skidmore .