¿Por qué no estudiar abogacía en USA?

Este triste gráfico de flujo hilarante le convencerá de no ir a la Facultad de Derecho
Erin Fuchs

Un abogado de Connecticut llamado Samuel Browning ha creado un diagrama de flujo masivo de la lista de todos los terribles razones que la gente quiere ir a la escuela de leyes en estos días.

Esa carta se basó en el libro "No vaya a la Escuela de Derecho (A menos que)", de Paul Campos, que esboza las pocas buenas razones para obtener un doctorado en leyes en el mercado actual. Matt Leichter publicó el diagrama de flujo en su Law School Tuition Bubble blog, y él y Browning nos han dado permiso para publicarlo aquí.

Como puede ver, la carta de Browning pudo contener la mayor parte de los aspirantes abogado incluso de tomar el LSAT. Compruébalo por ti mismo:



Business Insider

El oro en el apocalipsis: ¿A cuanto cotizaría?

Why Gold Would Be Useless in an Economic Apocalypse

Seriously, stick with the canned goods. 

Reuters

Since November, financial advisor David Marotta has been publishing a series of blog posts on how to manage your money in the event of a financial apocalypse—as in a world of hyperinflation, governmental collapse, and anarachic mobs. You know, the standard stuff of a doomsday prepper's fever dreams. While Marotta admits he has some fears about the direction of the country (the man's not an Obamacare fan, to say the least) most of it seems to be fairly tongue-in-cheek material aimed at talking potential clients down from investing in some of the crazy, survivalist scams advertised on conservative talk radio. (Sadly, TheWashington Examiner seems to have missed the humor). 

And the first scam on his agenda? Plowing all your money into gold, of course. Here's his biblically inflected explanation of why toting around a suitcase of gold come the end times—and at today's prices, a $1 million in gold coins would fit in a suitcase—would be a suboptimal strategy: 

If there really is a collapse of the money supply it is difficult to believe that your briefcase of pretty coins will still have any purchasing power near $1 million. In the 1970s, Christian singer Larry Norman made popular the Apocalyptic song lyric, “A piece of bread could buy a bag of gold” based on Revelation 6:6. In The End, I’d rather not have bought as much gold as possible.

In other words, when an economy goes full-on Mad Max and we're all reduced to bartering, the survivors are going to be more interested in useful goods than in a soft metal useful mostly for ornamental purposes. Part of gold's value as a commodity is derived from the fact that it can easily be traded across borders. But if that were no longer an option, and you were reduced to using bullion to buy a baguette, it wouldn't really matter what people in China or India were willing to pay for your gold. 

I would also add that, in a truly Hobbesian state of nature, it might not be wise to keep all your wealth stored in a small, easily pilfered box. 

Now, in fairness to the goldbugs out there, I think Marotta is oversimplifying a bit. Let's say the United States has a bout of Zimbabwe-like inflation, but the international commodities markets stay up and running. Theoretically, if the collapse of the world's reserve currency hasn't shocked the entire global economy into paralysis, you might be able to trade your gold for Euros or Swiss Francs or whatever else the markets start denominating prices in and start a nice little import business.

The problem is that if doomsday doesn't arrive, you're probably stuck with a bum investment. As Marotta puts it: "Gold has a low expected return of just inflation and one of the highest volatilities as measured by standard deviation. That means that the optimum asset allocation to gold is always zero."

His bottom line? Keep the shiny stuff to less than 3 percent of your portfolio. And, if you're really convinced the end is nigh, I say stick with canned goods.

The Atlantic

Convirtiendo un libro en ventas

How to Make Your Book a Bestseller

An imagined guide to successful self-promotion

MARY KAY ZURAVLEFF

The Atlantic

Flickr / Ian Muttoo

More and more often these days, authors are considered responsible for their own success—and those who were once responsible for promoting them now tout the glories of self-promotion. Or, as a cheery New York literary agent recently put it, “You, the author, have an unprecedented amount of control over the way people discover you and your work, and how your ‘presence’ is presented to the world.”

Here’s what an author's guide to stardom might look like in the near future.

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What a fortunate time to be an author. With the range of social and antisocial media at your disposal, you, the author, have unlimited opportunities to reach every single member of your potential audience. And we have your back, we do. That’s why we’ve assembled these tips for getting the world’s attention. It’s time for you to think outside the book.

The Internet

Finding the right audience is like online dating. Who loves long walks in the rain?There’s a soul mate for your Portland-born Samantha! Is someone enamored of the majestic beauty abundant in America’s national parks? Marry this novel, already! All you, the author, have to do is play matchmaker.

Your ripe and delicious novel could be all over that internet like a brag on Facebook. Take the passage where Samantha climbs Half Dome to meet up with Hugo. You might:

• Write a life-changing essay about a trek of your own, and submit it to LifeChangingHikes.net, YosemiteAfternoons.com, StoriesBehindPeopleNamedSamantha.net, or the Huffington Post.
• Craft a dozen painstakingly researched pieces on Samantha’s gear. Offer these to blogs devoted to day packs, crampons, tampons, etc.
• Post a novel excerpt in TripAdvisor’s Yosemite comments section.
• Write a quiz on Literary Hikes for your Goodreads author page—give away your novel as a prize!
• Organize a flash mob performance atop Half Dome. Don’t hesitate to go full frontal Hollywood—maybe the crowd wears bear suits and ranger hats, though wet T-shirts work, too. All the better if you can do it on a double-rainbow day. Hiring several videographers will ensure that you have abundant footage for fashioning a two-minute You-Tube clip.

If each of the above leads four people to your novel, you, the author, will have nearly two dozen new readers. So start generating related content that your audience can use!

Book Clubs

Get chosen, already. Handy things to remember:

• You, the author, have written the perfect book for any club, whether centered around dogs, Nobel Laureates, or 19th-century classics. After all, Samantha names her kitten Aung San Suu Kitty—there’s the Nobel tie-in. With the same page count as Middlemarch and a review citing your “dickens of a plot”—hello, 19th century! And for the dog lovers, there’s your vet’s blog post, featuring that author photo of you surrounded by rescue greyhounds.
• Volunteer to make personal appearances. Samantha’s campfire-roasted quail? Treat the club to a mini-wing fest. The brandy toddies steaming forth from Hugo’s thermos? Mix, pour, repeat. (Bring your laptop for those who want to drunk dial Goodreads!)
• Once at book club, stay at book club. You, the author, might offer to read your hosts a chapter each night or clean the bathroom. When the others have gone and the household is asleep, locate the post-it above the computer labeled “passwords.” Don’t be getting all ethical at this late date; take a lesson from both the Nigerians and the NSA. Three bumps out on their email contacts, and you, the author, will go viral, baby.                       

Publicity

We counsel authors to manage their expectations—by which we mean, lower yours. You, the author, shouldn’t expect coverage for merely arranging words on a page. A better bet is to become a story. We suggest:

• Gain 100+ pounds and then lose them! Extra publicity for endorsing one simple rule that lets you enjoy the food you love and take off the weight.
• Find a cure for—oh, for heaven’s sake, do we have to do everything? You, the author, can do at least identify potentially curable diseases for yourself.
• Give 5,000 of your books away. This may sound counterintuitive, but once, for a single author, it worked. 
• Stop saying, “I couldn’t get arrested!” Use that password cache you collected, though robbing a bank works, too. Depending on the magnitude of your caper, you may garner cable or even national coverage. Added value: Bus stops now feature security cam footage, a.k.a. free book trailer!

Politicians know there are tradeoffs for being in the public eye, but the rewards are hard to beat. A term in the Senate or in the pen undoubtedly yields a new book, one embossed with the coveted “based on a true story.” And while it takes millions of dollars to run for office, you, the author, don’t even need a publicist to knock over a jewelry store—we are confident that you can get arrested! It takes bold moves like that to get your name out there. Or should we say in there, because you’d be lucky to get five to 10 years to capture an increasingly expanding audience. Don’t forget, if every prison library buys your book, it’s a guaranteed bestseller. 

La falla en la política monetaria de demanda agregada del FED

We’ll finally see that the Fed has done nothing to help Main Street

By Manuel Hinds December 24, 2013
Manuel Hinds is El Salvador's former finance minister. He also has worked with the World Bank in the public and private sector. In 2010, he won the Manhattan Institute's Hayek Prize.

What taper? Reuters/Brian Snyder

On Dec. 18, the Fed announced that in January it would start tapering its purchases of treasury bonds and mortgage-related securities by $10 billion a month, down from $85 to $75 billion per month. It also hinted that it would keep on tapering, possibly at a rate of $10 billion per meeting of the Federal Open Markets Operations Committee. The Fed also said that interest rates are unlikely to increase before the unemployment rate declines below 6.5%.

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The new policy mix seems to have accelerated the outflows of capital from the emerging markets (see here  and here). Yet, the initial response of the domestic markets was anti-climatic. The S&P 500 ended the week at record highs. The real economy (that is, Main Street) does not seem to have taken notice of the announcement.

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Is that strange? People who supported quantitative easing would argue that nothing is happening because the program has been quite successful. In their minds, this is similar to what happens when, after a successful recovery from a surgery, the patient walks happily away while the physicians dismount the equipment that has kept him alive. Before coming to this conclusion, however, we must ask ourselves, what did quantitative easing do for Main Street? Did it actually help to keep the patient alive?

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Unless you believe in Voodoo, you will want to identify the means through which quantitative easing transmitted its possibly beneficial impact to Main Street. We can think of two ways. One is increased availability of credit. The other is lower long-term interest rates.  Common sense and economic theory suggest that the two are linked. Larger amounts of credit lead to lower interest rates and lower rates lead to larger amounts of credit. On this basis, we should look only to one of the two variables. Yet, Fed distinguished between the two in its rhetoric, even if the open market operations are based on the supposition that they are linked as the Fed buys credit instruments to lower interest rates. The reason for this distinction seems to be that the Fed controls the short-term interest rates, not the long-term ones, through its conventional open market operations. When the crisis exploded, the Fed was able to lower the short-term rates to practically zero, but the long-term ones remained aloft. Quantitative easing increased the purchases well beyond what was needed to keep the short-term rates close to zero. It also aimed at reducing the long-term rates by purchasing long-term instruments in the market, including agency mortgage-backed securities ($600 billion between 2008 and 2009 and $40 billion per month since September 2012.)

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Thus, we can look at volumes of credit and interest rates separately.

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First, we can look at the volumes of credit. The next chart suggests that the help provided by quantitative easing to Main Street in this dimension must have been very scant. Most of the money created by the Fed since the September 2008 crisis through quantitative easing and otherwise has been turned into excess reserves of the banking system (excess reserves is cash that the banks can use to create credit but chose not to and instead deposited it back in the Fed). That is, the cash created by quantitative easing did not become additional credit but, instead, it became excess reserves of the banks deposited in the Fed.

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The next chart shows in a more dramatic way that the money created by quantitative easing has been sitting idly in the Fed. The curves plot the 12-month differences of the monetary base (the money created by the Fed) and the excess reserves of the banking system since September 2009 (12 months after the beginning of the crisis). They demonstrate that quantitative easing has worked as a merry-go-round. The Fed created the money only to see it returning as deposits of the commercial banks in the Fed itself.

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Thus, we have seen that the money created by quantitative easing did not go to increase credit to the private sector. It had a neutral effect because what the Fed created came back to the Fed. But, what happened to credit? Did it stay put, at the same level?

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The next graph shows that one major category of commercial banks’ credit increased since the crisis began: net credit to the central government (net of deposits of the government in the banks). However, total commercial banks’ credit went down substantially. By the end of the second quarter of 2013 it still had not recovered the level it had when quantitative easing began. Moreover, credit to the private sector (Main Street) declined and is still $600 billion below its level in 2008. Credit to other financial institutions also went down. Not a nice chart to see.

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You can argue that this chart does not portray the complete picture because banks are not the only source of credit. Right. The next chart shows that recently the financial system’s credit to the private sector did increase over the level it had at the end of June 2008 (the financial system includes the banks plus all other financial institutions, such as insurance companies).

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However, as shown in the next chart, the main source of this credit was not deposits but, instead, the insurance companies’ technical reserves and the financial institutions’ shares and other equities. To believe that quantitative easing helped to increase credit to the private sector you would have to believe that enormous amounts of money sitting idly in the Fed help increasing the technical reserves of insurance companies or lead to larger equity issues by financial institutions. Not very probable.

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Now we can look at the interest rate side of our puzzle. You can say that maybe quantitative easing worked not because the money it created became credit to the private sector but because it helped the long-term interest rates to decline and remain low. Certainly, low interest rates, even if they have not increased the volume of credit, may have had a substitution effect in the allocation of financial resources—that is, people who had invested in something not very attractive today (like housing) may have decided to move their resources to invest in equity shares. This lowered the cost of issuing shares to finance companies, including financial institutions (the price-to-earnings ratio has gone up substantially if, as suggested by Nobel laureate Robert Shiller, the earnings are estimated as the average of the last decade).

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This seems to have happened. The stock exchange has been in a frenzy of booms since the policies of artificially low interest rates have been applied. The low interest rates did not create new credit to Main Street but diverted resources toward the stock exchange, including the shares of financial institutions that used them to grant credit.

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The effectiveness of the Fed in keeping low the long-term rates seems to be waning, however. As shown in the next chart, the long-term interest rates have been increasing as of late (those of the US bonds since June 2012 and those of mortgages since February 2013) even if the short-term rates have been flat and close to zero. The mortgage rate has gone up from 3.4% to 4.5%, and the 10-year US Treasury bond rates from 1.6% to 2.9% since those dates, reversing the trend these rates had shown since the beginning of quantitative easing at the end of 2008. That was embarrassing. Quantitative easing was not able to keep the long-term interest rates low. Maybe it was time to quit before this became too obvious.

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But, why did the long-term interest rates increase while the short-term ones remain so low, particularly at a time when the banks are full of liquidity and could increase the supply of credit at a snap? One obvious answer is that the long-term market is expecting an increase in inflation rates. That is a good reason to stop quantitative easing, maybe better than the assertions of its complete success.

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Thus, perhaps nothing has happened after the Fed announced the end of quantitative easing because the program didn’t do anything except unnecessarily increase the liquidity reserves of commercial banks and help to keep the long-term interest rate low in the first few years of the program—something that recent evidence suggests it can no longer do.

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Of course, the fact that to this date nothing has happened does not necessarily mean that nothing will happen in the longer run. The problem will not come from the amount of money in circulation. The banks have enough excess reserves to submerge the world in currency. Yet, if the interest rates keep on increasing, and everything suggests that they will keep on doing it, many activities that have been profitable at the low interest rates will fail, and this will negatively affect the financial system. Depending on the magnitude of the adjustment, the coming event will be just financial turmoil or a full fledged financial crisis.

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Now, you can ask yourself, why getting into all this, risking inflation and financial turmoil just to have money parked in the Fed? Well, keeping the banks artificially liquid may be useful to keep insolvent banks artificially alive. Maybe this was the secret purpose of quantitative easing. Maybe the idea was to keep them liquid while they cleansed their bad loan and investment portfolios. However, for most of the life of the program, the monetary authorities have insisted that the banks were quite solvent.

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Were they? Are they? We are going to know the answers to these questions now that tapering seems to have started in earnest. The end of quantitative easing is like the end of Neverland. Only those who learned to live in the real world of free interest rates, as opposed to the fictional lands of artificially low interest rates, will survive. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.”

Quartz

Merca paraguaya competirá con la droga legal uruguaya

La Legalidad en Uruguay es una gran noticia para los señores de la droga de Paraguay
Por Roberto A. Ferdman @robferdman

Precio alto. Reuters / Mario Anzuoni

Cuando Uruguay comience a vender marihuana cultivada por el estado el año que viene, las cosas va a estar barata - el gobierno, la única entidad a la que se le permite vender marihuana, que planea cobrar sólo $1 por gramo. Eso se compara con un precio medio de la calle de alrededor de US $ 20 en los EE.UU.

Pero eso podría no ser en realidad bastante barato.

Los narcotraficantes en el vecino Paraguay, uno de los mayores productores de la región de marihuana, (pdf) y contribuyentes pesados ​​al narcotráfico subterráneo en ciernes de América del Sur, pueden ser capaces de producir y vender por mucho menos. Un kilo de marihuana cultivada en Paraguay actualmente se vende por $ 60 en el país y 300 dólares en la frontera con Uruguay, según el jefe de la Secretaría Nacional Antidrogas de Paraguay Luis Rojas. (enlace en español ) Eso es 0,06 dólares un gramo y $ 0,30 el gramo, respectivamente.

La perspectiva de una brecha significativa que tiene funcionarios paraguayos bastante preocupado. Gran parte de la mala hierba ilegal de Uruguay ya se cree que proviene de Paraguay - algunas de ellas a través de Brasil, que se cree que es el primer destino de hasta el 80% de toda la marihuana producida en Paraguay . Pero una vez que la droga es legal, el consumo uruguayo presumiblemente va a subir, y el más barato producto paraguayo ilegal competirá favorablemente con la ganga sancionada por el gobierno más caro. "Estamos más que convencidos de que va a estimular el consumo interno y por lo tanto el tráfico de marihuana hacia allí", dijo Rojas.

Paraguay ha sido constante en su crítica de la histórica legislación para la marihuana de Uruguay. En agosto, Rojas advirtió que la legalización de la droga haría poco para frenar los flujos de drogas regionales en el país. "El mercado uruguayo va a recibir la marihuana que se produce y que no vamos a dejar de recibir la marihuana producida en Paraguay", dijo en ese momento. Es un escenario que Uruguay es más que probable que en cuenta, así como preocupados. Si bien la suciedad malezas barato no es el fin del mundo, una presencia continua de los flujos de drogas ilegales podría ser un reto, especialmente si esto significa más de la violencia relacionada con las drogas que llevó Uruguay para impulsar la legalización de la marihuana en el primer lugar.

Quartz

El futuro desempleo estructural estadounidense

10 American Industries That Will Be Destroyed In The Next Decade
ALISON GRISWOLD

Dan Kitwood/Getty Images

The clock is ticking on several industries that have long been staples of the American economy.

A new report from the U.S. Bureau of Labor Statistics highlights the industries that are expected to decline the most over the next 10 years. In one of the fields, the BLS forecasts that the workforce will shrink by more than 50% between 2012 and 2022.

Manufacturers of all types will take the brunt of the hit. Industries that produce everything from computer equipment to leather products are expected to bleed positions in the coming years.

It seems that most "made in America" products will soon be relics of the past.

10. Miscellaneous manufacturing

Bill Pugliano/Getty Images

Number employed in 2012: 268,400

Number projected in 2022: 211,100

Percent decline: 21.3%

Why: The recent recession put a ton of pressure on this industry, which manufactures products such as artificial flowers, mirrors, umbrellas, and fly swatters. These items mostly fall into consumer discretionary spending, which sank during the recession and remains low as the recovery inches along.

9. Textile mills and textile product mills

Feng Li/Getty Images

Number employed in 2012: 234,600

Number projected in 2022: 183,100

Percent decline: 21.8%

Why: U.S. textile mills began to close decades ago, and that trend hasn't reversed. It's much cheaper for companies to outsource textile production to other countries than to pay employees at home.

8. Hardware manufacturing

Lisa Maree Williams/Getty Images

Number employed in 2012: 25,000

Number projected in 2022: 19,400

Percent decline: 22.4%

Why: Hardware products are typically used in the manufacturing of other items like cars and furniture. Demand for those products collapsed during the recession, and the hardware industry still hasn't recovered, especially with an influx of competitively priced imports.

7. Newspaper, periodical, book, and directory publishers

Justin Sullivan/Getty Images

Number employed in 2012: 451,800

Number projected in 2022: 346,800

Percent decline: 23.2%

Why: E-books, smartphones, tablets, computers, and the Internet are destroying print media. Publishers and editors alike are trying to figure out how to get consumers to pay for content they can find for free online.

6. Spring and wire product manufacturing

Christopher Furlong/Getty Images

Number employed in 2012: 41,600

Number projected in 2022: 31,300

Percent decline: 24.8%

Why: This industry was another one that suffered in the recession. Factories closed and jobs were slashed or moved to cheaper facilities abroad. Plunging domestic auto manufacturing and homebuilding didn't help, either, as overall market demand sank.

5. Computer and peripheral equipment manufacturing

Ian Waldie/Getty Images

Number employed in 2012: 158,600

Number projected in 2022: 118,700

Percent decline: 25.2%

Why: Like so many other manufacturing sectors, companies in this industry continue to move jobs and plants overseas. High-end products are still made in the U.S., but the bulk of cheap and mass-produced items have moved away from home.

4. Postal Service

REUTERS/Mike Blake

Number employed in 2012: 611,200

Number projected in 2022: 442,100

Percent decline: 27.7%

Why: The Postal Service has struggled ever since email caught on. The USPS is hoping that cost-cutting measures and growth in e-commerce deliveries will bolster its revenues, but that largely remains to be seen.

3. Communications equipment manufacturing

China Photos/Getty Images

Number employed in 2012: 109,500

Number projected in 2022: 78,600

Percent decline: 28.2%

Why: Product innovation and design still takes place in the U.S., but the actual production of this equipment (TVs, radios, cell phones, etc.) is typically outsourced to countries with lower wages such as Mexico and China.

2. Leather and allied product manufacturing

Peter Macdiarmid/Getty Images

Number employed in 2012: 29,400

Number projected in 2022: 18,500

Percent decline: 37.1%

Why: Most of the world's consumers of leather and hides are located overseas, which makes for an extremely weak domestic market. U.S. tanners and leather makers depend on the ability to export their products and the trade agreements governing the practice.

1. Apparel manufacturing

Michael Loccisano/Getty Images

Number employed in 2012: 148,100

Number projected in 2022: 62,300

Percent decline: 57.9%

Why: Last time you checked the label, how many of your clothes were made in the U.S.? Similar to textile production, most of apparel manufacturing now takes place overseas. That helps companies cut costs and keep garments cheap for consumers.

Business Insider

Para mediados de 2014 Bitcoin valdrá $10

FINANCE PROFESSOR: Bitcoin Will Crash To $10 By Mid-2014

MARK T. WILLIAMS, CONTRIBUTOR

In Bitcoin World, a week can be the equivalent of a decade.

At the start of December, Bitcoin topped out at over $1,200 as e-currency evangelists trumpeted the endless possibilities to be unleashed, comparing it to the breakthroughs not achieved since the start of the internet revolution.  Bitcoiners claimed market disruption would bring credit card companies and payment platforms such as Western Union to their knees.  Some even claimed that Bitcoin would supplant the U.S. dollar as the new global reserve currency.  Adding more helium to the story, the Winklevoss twins of Facebook fame, not being shy about talking up their own book, predicted prices would rise to a staggering $40,000 per coin.

And from January to December 2013, markets obeyed with prices rising over 8,000 percent.  In the mist of this hype, it appeared that the Bitcoin Revolution was on its way to transforming the economy, putting central bankers out of work and minting new e-currency millionaires daily.  Bitcoin was priced for perfection. This past week, however, the market didn’t stick to the script.  Instead it began to challenge the rhetoric, knocking prices down as low as $535, a drop of about 55 percent from recent highs.  The market has finally realized that hype alone cannot support lofty prices.  Bitcoin is not a legitimate currency but simply a risky virtual commodity bet.

Flawed DNA

Since inception, Bitcoin has had a flawed DNA.  It was dreamed up in a virtual world -- by computer geeks -- but was to be applied in the real world.  Bitcoin is steep in Libertarian and anti-Fed dogma but weak in understanding of how global economics, central banking policies and financial markets function.  The lifeblood of the global capital markets is money – greenbacks -- transactional currency that facilitates commerce.  Virtual currency can create value and efficiency but it needs to be linked to fiscal and monetary policy.  To assume currency can be computer generated, run in a decentralized manner and outside of the central banking system and controls is farcical and economically dangerous.

For currency to be adopted as a medium of exchange there has to be trust in the ability to honor the underlying obligation and the ability for central banking policy to control inflation.  Historically the Fed has done a remarkable job maintain an average inflation rate of no greater than 2.5 percent.  Given that two-thirds of U.S. GDP is driven by consumption, price stability in currency is essential.  Without it, GDP growth is retarded and standard of living shrinks. 

Even from a basic operational standpoint there are major flaws in Bitcoin structure.  For example, it is assumed that miners will behave in a responsible way and not game the system for greater financial reward.  Ignored is the human element and need for controls to keep pace as increases in market prices increase incentives to cheat.  Fraud is also on the rise.  Recently reported was that $220 million in Bitcoins were stolen and not recovered (Business Insider, 12/4/13).

Meantime, the inherent secrecy of coin ownership decreases the ability to prevent and potentially solve crimes.  There is also little legal protection for investors and significant financial risk if an owner’s hard drive gets corrupted, the computer is stolen or lost, rendering Bitcoin Wallets permanently lost.  Should transfer instructions be incorrect and payments credited to a wrong account, Bitcoin transfers are not easily reversible.  Moreover, the Bitcoin authenticity process also takes time which is not conducive to high volume retail sales where customers want to get in, pay for their goods and get out with no delay. In contrast, storeowners will be hesitant to have customers walk out the door with product, especially if authenticity process is not completed.

Unfit as a Currency

Bitcoin lacks the essential attributes that are needed to support a widely recognized transactional currency.  If Bitcoin was allowed to proliferate as a currency it would produce greater economic uncertainty, reduced trade and lower individual standard of living.

Bitcoin has not taken off as a transactional currency and is further undermined by the fact that the majority of Bitcoin owners hoard e-coins. The more hoarded the less available to buy goods and services and spur economic growth.

In Bitcoin World it is not uncommon for prices to change by 20 or 30 percent in a given day, making Bitcoin toxic to economic growth.  Price swings produce conflicting behavior.  Retailers work on tight margins, sometimes as low as 10 percent.  Such daily price fluctuations would eliminate all profit and inflict needless losses.  Unless retailers want to be in the commodity trading business, they would not be interested in taking Bitcoin risk.  At restaurants, Bitcoiners expecting coin values to drop might rush to pay for dinner even before the first entree arrives while restaurateurs would be motivated to delay payment until the drop occurred.  If Bitcoin owners believe value would increase, they would hoard more coins and velocity of money would decline, harming economic growth.

In this Bitcoin World of currency uncertainty, guessing and risk, commerce would decline and bartering would increase.  Naturally, as Bitcoin price swings increased, the number of businesses willing to accept e-currency risk would decline.  This is why in recent weeks, as large price movements have occurred, we have seen more credible retailers saying “No” to Bitcoin. 

High-Risk Commodity

Bitcoin has been trading like an out-of-control rollercoaster with price movements in 2013 climbing from $13 to $1,200 and then in only a week, careening down to a low of $535.  This high-test virtual commodity has 8 times the volatility of the S&P 500 and presents significant liquidity risk.  There are now over 12 million Bitcoins outstanding.  This volume of ownership has not been bear-market tested and if enough sellers try to run for the door it is not clear that existing infrastructure is capable of executing trade orders without significant time delays and price risk. 

The buying and selling of Bitcoin is also controlled by only a handful of exchanges in places like China, Slovenia and Bulgaria.  These exchanges are based on a peer-to-peer model and regulation is light with price disparities between exchanges commonplace. Exchange bankruptcies are not uncommon.  In November, GBL, a Hong Kong based Bitcoin exchange closed it’s doors, costing investors over $4 million. As a virtual commodity, it is a high-risk bet in a wild-west atmosphere, requiring speculators to stay cautiously alert.

China Pricked the Bubble

Every asset bubble has three stages; growth, maturity and pop.  Growth started in 2011, followed by the maturity stage in 2013 and now the pop stage.  The pin that burst the Bitcoin hyper bubble was China.

Ironically, China, the second largest economy in the world, helped push Bitcoin prices to the clouds and now is pulling prices back to earth.  In the last week, China has delivered three knockdown punches.  First the central bank forbade its banks from accepting Bitcoin as currency.  Then, Baidu, China’s Google equivalent, announced it would no longer process Bitcoins.  Finally, China banned third-party payment companies from transacting with Bitcoin exchanges.  This last announcement significantly weakens market liquidity for BTC China, the largest Bitcoin exchange.  By voting “No” on Bitcoin, China fueled greater market skepticism.  Markets have already responded by lopping off, at the low, $6 billion in Bitcoin investment value.

Other wealthy and powerful countries have taken a similar position, warning against the risks of this wannabe currency.  Moves by European Banking Authority representing the largest economy in the world, France, the fifth largest economy and Norway, the wealthiest in Scandinavia all point to a growing number of roadblocks.  Last month, Fed Chairman Ben Bernanke indicated e-currency “may have long-term promise” but his statement was not a ringing endorsement for Bitcoin adoption.  To the contrary, as large price swings continue, U.S. and other G20 countries will raise concerns, restrictions and begin clamping down on virtual currencies. 

Bitcoin has seen an end to its hyper price run-up and can no longer support being priced for perfection.  Unlike gold which has tangible value, Bitcoin is backed by hopes/dreams and only worth what people are willing to pay.  As it becomes increasingly evident that Bitcoin will not be the global currency standard, but simply a novel idea that will be improved upon by more nimble competitors such as Litecoin, restrictions and new regulations will be imposed and prices will plummet.

I predict that Bitcoin will trade for under $10 a share by the first half of 2014, single digit pricing reflecting its option value as a pure commodity play.  Miners/speculators will be best served to acknowledge the meltdown has begun, act quickly and take fleeting profit off the table. 

(Williams, a former commodities trading floor senior executive and Federal Reserve bank examiner, teaches finance at Boston University School of Management.)

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