Is bitcoin a viable currency? It’s probably too volatile — Jonathan Parker

MIT Sloan Professor Jonathan Parker

MIT Sloan Professor Jonathan Parker

From The San Francisco Chronicle

While bitcoin remains a hot-button issue, most of the talk has centered on the technology of this virtual currency. There are lots of questions: Is bitcoin really secure? Is it truly anonymous? Can it be counterfeited? Are transaction costs actually lower?

I have a more fundamental question: Is bitcoin a viable currency?

My answer is no, and not just because of the wild fluctuations in the value but because these fluctuations are destined to continue. A good currency serves three purposes. It is:

A unit of account, used to measure and write contracts for income, wealth and goods.

A means of payment, used to avoid barter.

A store of value, held to be able to make future transactions.

Of these, the third historically has been the most important. People will be wary of accepting something that might lose lots of value, and something with a volatile price makes a bad unit of account.

Basically, bitcoin lacks a mechanism for setting the supply equal to the demand. That is needed in order for bitcoin to maintain its value.

History is replete with examples of what happens to currencies with fixed supplies. When governments tie their hands in the supply of their currencies, much like bitcoin has done, the value fluctuates.

Read the full post at SFGate

Jonathan A. Parker is the International Programs Professor in Management and a Professor of Finance at the MIT Sloan School of Management.

A bold new way to fund drug research — Roger Stein

MIT Sloan Senior Lecturer Roger Stein

MIT Sloan Senior Lecturer Roger Stein

From TED

Believe it or not, about 20 years’ worth of potentially life-saving drugs are sitting in labs right now, untested. Why? Because they can’t get the funding to go to trials; the financial risk is too high. Roger Stein is a finance guy, and he thinks deeply about mitigating risk. He and some colleagues at MIT came up with a promising new financial model that could move hundreds of drugs into the testing pipeline. (Filmed at TED@StateStreet.)

Roger Stein wants to bring financial engineering to the world of drug funding.

Watch the video on the TED site.

Roger Stein is a Senior Lecturer of Finance at the MIT Sloan School of Management. 

What’s driving the buyout comeback? — Erik Loualiche

MIT Sloan Assistant Professor Erik Loualiche

MIT Sloan Asst. Professor Erik Loualiche

From Fortune

Buyouts tend to come in waves. The first arrived in the 1980s, when a series of high-profile leveraged buyouts shook the corporate world. Buyouts surged again in the mid-1990s, the late 1990s, the early 2000s, and around 2006.

In peak years, there were nearly a hundred buyouts — in off years, as few as 10. The 2008 financial crisis is a striking reminder of this boom-bust feature of buyout markets. At the bottom of the market in 2008 we counted as little as 10 deals; the value of these deals was also low at 48 basis points fraction of total stock market capitalization.

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Wall Street’s next bet: Cures for rare diseases — Andrew Lo

MIT Sloan Professor Andrew Lo

MIT Sloan Prof. Andrew Lo

From Fortune

What if I told you about an investment fund that diversifies your portfolio, shields you from fluctuations in the stock market, and earns double-digit returns? Sounds interesting, right?

Did I mention that this investment also creates potentially life-saving treatments for deadly rare diseases?

This fund doesn’t exist — at least not yet. I’m cautiously optimistic, however, that in the near future we’ll see the launch of an orphan disease “mega-fund” that finances early-stage biomedical research and drug development and is also a tidy investment. Read More »

IPO opportunities in the cloud — Charles Kane

MIT Sloan Sr. Lecturer Charles Kane

MIT Sloan Sr. Lecturer Charles Kane

From the Boston Business Journal

IPOs are making a comeback, according to Ernst & Young. E&Y surveyed 300 institutional investors and found that 82 percent had invested in IPO or pre-IPO stocks in the previous 12 months, compared with only 18 percent in the prior two years.

While the rebound has occurred across industries, investors clearly like certain kinds of companies more than others. Biotech has had a string of successful IPOs. This infusion of capital will allow companies to get their products to market faster, which should get us closer to curing or combating diseases. The social media industry also has been drawing IPO investors of late, despite Facebook’s bungled IPO in the spring of 2012.

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