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Bitcoins Are All The Rage, But Can It Last?

This past week, the media and investors alike have become enraptured with decentralized virtual currencies, and the star of the show is Bitcoin, the world’s first virtual currency. In 2009, Bitcoin presented data mining as an alternative mechanism for introducing currency into circulation, awarding miners with bitcoins for solving complex math puzzles. Bitcoin operates by a peer-to-peer structure, with computers working together to process transactions, and the currency is capped at a fixed supply of 21 million Bitcoins.

bitcoin

Proponents of Bitcoin advocate its potential to spark a legendary wave of financial innovation and improve international payments. With its low exchange fees, Bitcoin provides an opportunity for developing countries, with little access to financial services, to easily send and receive digital payments. Last Thursday, the LA Times reported that the University of Nicosia in Cyprus will accept Bitcoins as tuition payment and offer a master’s degree in digital currency, with hopes that the government will make Cyprus a Bitcoin hub. A plethora of other virtual currencies have emerged, such as litecoin, alphacoin, fastcoin, peercoin, bbqcoin, and fireflycoin, sharing the same underlying principles as Bitcoin with different algorithms. Bitcoin is the most widely accepted currency, with an implied value of $6 billion.

Virtual currencies have also ignited distrust and fear due to associations with money laundering, drug trafficking, and other illicit activities, sparking Senate hearings about potential regulation. Bitcoin was the digital currency utilized in Silk Road, an online market that funneled illegal drugs and services. Concerning virtual currencies, Ben Bernanke wrote that the Federal Reserve “does not necessarily have the authority to directly supervise or regulate these innovations or the entities that provide them to the market.” However, the Federal Election Commission denied Bitcoins as legitimate funding for political action committees last Thursday. Although each Bitcoin contains a digital record of where it has been since creation, PACs have to publicly identify their donors, and Bitcoins do not provide private names.

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A graph of Bitcoin’s price since November 2012.

With irrational exuberance, investors optimistically bid up Bitcoin’s price to a high of $900The recent speculative activity has amplified uncertainty around the currency’s actual value. This made me think of a discussion I had this Wednesday in my ‘Mapping Victorian England’ literature class, in which we examined Haggard’s King Solomon’s Mines, an adventure novel about Englishmen journeying through Africa in search of diamonds. A witch named Gagool mocks the Englishmen, “there are the bright stones that ye love, take as many as ye will; take them, run them through your fingers, eat them, drink them!” In class, we discussed that diamonds have no intrinsic value; instead, a diamond’s value is derived from society’s determination of worth. Just as diamond miners cannot eat or drink a diamond, the data miners cannot directly consume a virtual coin – but this does not make them worthless. The value of a Bitcoin is determined by the products and services that it can purchase. Bitcoin has been ridiculed as a worthless currency, but there is clear demand, with agents willing to accept Bitcoins as payment, and so they have real economic and societal value. Although the recent price rally was driven by speculation, the markets are attempting to price Bitcoins, and only time will reveal what this price will be.

Do you think Bitcoin and other virtual currencies will revolutionize the financial system? Should the government pass regulation, or should virtual currencies remain decentralized and open?

-Kara

Surprise, Surprise – Bernanke Shocks Markets Again

This time last year, I wrote my first blog post for the Leader’s Edge about the Federal Reserve’s decision to implement a new quantitative easing program. The Federal Reserve Chairman Ben Bernanke introduced a surprising twist – the program was open-ended, setting no predetermined limit for purchasing bonds. Markets surged in reaction to the unexpected news. Since that time, the Fed has consistently bought $85 billion of treasury and mortgage-backed securities per month, aiming to dampen interest rates, boost the housing market, and encourage spending and investment.

Bernanke

Bernanke surprised markets announcing the Fed will not begin tapering the quantitative easing program.

This past Wednesday, Ben Bernanke surprised markets yet again – but this time, by announcing that the Fed will not begin tapering the quantitative easing program. Prior to Wednesday’s announcement, investors and economists were convinced that the Fed was going to cut its monthly bond purchases by $10 billion. After assuring investors this Wednesday that the Fed will continue at its current pace, the S&P 500 and Dow Jones Industrial Average reached all-time nominal highs.

These press conferences from September 2012 and 2013 both defied investors’ expectations and fueled optimism in the markets. Even more so than last year, investors today obsessively analyze Bernanke’s statements, attempting to forecast the Fed’s future plans. Analysts are already anticipating the next Federal Reserve press conference, debating whether quantitative easing will be tapered before the year’s end. This sensitivity to the Fed’s policy decisions has contributed to market volatility.

Given the Fed’s inconsistent announcements in recent months, Nrayana Kocherlakota, the President of the Federal Reserve Bank of Minneapolis, has admitted that communication has been an issue for the central bank. In June, Bernanke announced that tapering would begin before the year’s end, sparking a media frenzy. Analysts forecasted the dramatic consequences of reducing the flow of cheap money into the economy. On Wednesday, Bernanke counteracted his prior statement and emphasized that the program is not on a fixed course. In a Reuters’ poll, economists agreed that the Fed’s communication has been unclear in the past few months, resulting in market uncertainty and widespread distrust of the central bank.

How do you think the Federal Reserve should improve its communication strategy? Do you think the media contributes to market uncertainty and confusion?

– Kara

How I Got Into Venture Capital With A Dual Degree In Biomedical Engineering and Applied Math & Statistics, And A Minor In Entrepreneurship & Management.

I began thinking about what I wanted to do with my life and what type of career I wanted back in high school. Thanks to some pretty stellar and unique engineering internships, I decided I wanted to be an engineer, but wasn’t sure which kind. I was also interested in being a doctor so Biomedical Engineering seemed like a solid compromise.

Boom!  In the blink of an eye I am picking out my classes for my first semester at The Johns Hopkins University.  I selected Introduction to Business since the topic was of interest to me and the course would help me satisfy several graduation requirements. While at the time I thought this course would just be an interesting elective, it turned out to be a pivotal course for shaping my future career path.

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Over the next two years, I would spend the summers and winter breaks working at a DOD lab back home as an engineer. However, through those internships and my BME coursework I learned I did not enjoy being an engineer. What should you do if this happens you?

1. Don’t freak out.

Biomedical engineering is by far the most interesting technological field right now.  To date, I pride myself on keeping up to date with advances in both the “science” and the “techniques.”  Yet, I had decided that I did not want to be an engineer and I had decided that being a doctor was also not in the cards.  So I asked myself, “What have you done on this campus that you truly have enjoyed? Not just intellectually, but the actual process of completion?”

2. Go to “first meetings of the year.”

Go to as many first meetings as possible for any organization you might be interested in.  While there is no way you can (or should) do them all, it’s a great way to find some niches of which you had been previously unaware.  I had the great privilege of being a part of many groups on campus including (but not limited to) SGA, AKPsi, The Pre-Law Society, the Politik, Senior Leadership Consultants, and the club Ice-Hockey team.

3. Listen to yourself. 

When I self-evaluated I realized my true day-to-day passion revolved around business. Mind you, this is not the most reassuring realization. Fortunately, there was some precedence for this type of thought. The solution for most Hopkins engineers is to go into some sort of consulting. Which makes sense; you can use a lot of the same equations and all of the same analytical skills. Instead of optimizing a cell pathway, you’re optimizing logistics for some big corporation.

4. Don’t rush a decision.

If you are already pivoting from what you are studying, make sure you pick the right pivot. A lot of my peers went on into consulting. Yet, personally, something didn’t “feel” right. Basically, I would be engineering for businesses, not actually doing business. “And what about the science?” I asked myself. Shouldn’t I stay involved somehow?

The semester before I was having this conversation with myself, I was taking an E&M course called “Managing Social Enterprises” which was all about how management styles differ between social and for-profit companies as well as startups vs established companies. It was from this class that I finally found my answer. I would love to join the Venture Capital/Startup world. This would allow me to practice business plus stay connected to the biomedical world. The question was–how?

5. Talk to everyone.

It is not so easy to be a BME/AMS double major and decide you want to go into VC.  Most VCs have been to business school and/or worked for a successful startup.  I had not.  Fortunately, one night I happened to be in DC visiting some friends.  While hanging at a local bar, I started talking to someone who knew a local VC and he put us in contact.

6.  Internships!

You may or may not be paid, but such is the nature of internships in 2013. The most important thing is the experience the internships provide, not the paycheck, so be sure to take advantage of internships even if they are unpaid.  During my senior spring I interned for Fortify Ventures, an early-stage tech VC firm located in DC. While I was what you would call a gopher, I learned quite a few valuable lessons. I was able to turn this internship into another internship, joining the investment team at the Center for Innovative Technology, an early-stage VC firm located in Herndon, VA. Fortunately for me, CIT invested in not only technology firms, but also green energy and biotech companies. So it was at CIT that I finally began evaluating companies, thus gaining some true VC experience while still only being an intern.

7. Leverage where you are to get one step closer.

Before I could be considered a viable candidate for full-time (non-intern) position at a VC firm, I needed to either go to business school, get my Ph.D., or join a successful startup. I chose the third option. While my true passion is biotech, I chose a tech company for a practical reason. Biotech startups take ten years to grow and tech startups take just two to three years.

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Last October, a video-processing company called Veenome came and pitched CIT. Being on the investment team at CIT, I was able to get a clearer picture of Veenome than most of the other applicants and was thus able to land a job with Veenome. Here I am, six months later, truly enjoying work everyday and very well poised for the career I want. Yet, I often think about what would have happened if I had not listened to myself and had stayed an engineer.

– TJ Bozada

Twitter’s New Role in Business

Despite Warren Buffett’s record of shunning new technology, the Chairman and CEO of Berkshire Hathaway joined the social media trend and created a Twitter account, @WarrenBuffett.  Within 10 minutes, Buffett had 10,000 followers, and 3 hours later he already exceeded 140,000 followers. However, Warren Buffett remains wary of new technology and social media. Michael J. De La Merced of The New York Times reports that at Berkshire Hathaway shareholders conference, Buffett disagreed with the recent US Securities & Exchange Commission decision to allow companies and executives to release material information on social media sites, such as Twitter and Facebook. Not only is this a threat to Berkshire Hathaway’s press release service, Business Wire, but false information can mislead traders and investors.

buffett tweets

In the past, most firms on Wall Street shut off all access to social networks on their systems. In April, the SEC decided to allow public companies to disclose corporate information through social media. According to Bloomberg, it is the first financial information platform to incorporate Twitter into their system, allowing traders and analysts to monitor and analyze real-time tweets. Twitter updates by a select group of news services, financial writers, economists, and bloggers are streamed live to Bloomberg terminals, which are used by more than 300,000 employees on Wall Street. The Twitter news flow can be adjusted to light, medium, or heavy, and can also be filtered by company, industry, or market.

There are risks associated with relying upon social media for credible information. The New York Times reports that on April 23, a false tweet from the official Associated Press Twitter reported that an explosion at the White House injured Obama. Following the tweet, the Dow dropped 150 points and the S&P 500 lost $136 billion. The market quickly recovered when traders realized the Tweet was a hoax, and it was later discovered that the tweet was issued by a group of Syrian hackers. This has raised concerns about the combination of social media and electronic trading. Twitter accounts can be hacked, and the spread of false information can have serious consequences for high frequency traders who trade rapidly based on news and information.

Do you agree with the SEC’s decision to allow companies and executives tweet corporate information? What do you think the role of social media should be in finance and business?

– Kara

Are You A Startup Seeking Funds And Support? Try Google Ventures.

GoogleVenturesGoogle innately understands the power of a simple idea, a simple idea that will not become anything more unless it is supported intellectually and financially. Google Ventures, founded in 2009, is the venture capitalist investment arm of Google that selects technology startups to invest in. Its purpose is to provide funding for “entrepreneurs with a healthy disregard for the impossible”  and is certainly one of the company’s most promising solutions for new businesses.

Google’s Startup Lab uniquely blends expertise in the field of startup technology companies and provides an opportunity for companies to learn, work and share ideas. Google presents the platform for entrepreneurs to initiate conversation and attract funding to turn the fruits of these conversations into functioning prototypes.

The services provided through Google Ventures include assistance with marketing strategy, developing an engineering team, working with a functional design team and more. Below is just one of the companies Google Ventures has helped.

Upstart is one of the Google Ventures companies now helping student startups.

Upstart is one Google Ventures company now helping student entrepreneurs with their startups.

It is safe to say that a simple idea fostered through Google Ventures has the potential to become the next must-have consumer product or business solution.

Just one example of Google honoring its history and innately understanding what entrepreneurs need most, Google Ventures is a start up support system unlike any other venture fund in the world.

Do you have an idea they make like?

– Erica Zehnder

Softbank bets on Sprint, but can it rival Verizon and AT&T?

Recently, the Wall Street Journal reported that the Japanese wireless carrier Softbank will acquire 70% of Sprint for $20.1 billion. Fans of the famous Japanese entrepreneur and CEO of Softbank, Masayoshi Son, celebrate his past success in turning around Japanese companies. Softbank raised Vodafone up from its number 3 spot in the Japanese telecommunications market, and it plans on doing the same for Sprint, which is currently the number 3 wireless provider in the US. The deal may allow Sprint to challenge the current duopoly of Verizon and AT&T in the US by using the cash infusion to develop a 4G network to better compete with these two giants. Sprint also announced that it offered to buy a stake in Clearwire, a struggling broadband company whose wireless spectrum could be used by Sprint to support its network.

Masayoshi Son, Founder and CEO of Softbank

The telecom industry could be headed for more consolidations like this deal, as synergies between Softbank and Sprint may be able to increase their profitability and allow them to negotiate better terms from Apple and other equipment vendors. Also, Sprint offers unlimited data plans to iPhone subscribers, and the deal could amplify this competitive advantage. If the duopoly of Verizon and AT&T is challenged successfully, customers will benefit by enjoying lower prices and more choices of available products and plans.

Yet some remain skeptical that the Softbank-Sprint merger will be effective, as Seeking Alpha reported that Verizon and AT&T hold 80% of the US market share, and many analysts remain convinced that the two giants will stay at the top of the US telecom industry.  According to Reuters, Verizon had 108 million users and AT&T had 103 million users in 2011, while Softbank and Sprint combined only have 96 million users. With Sprint’s weak competitive position and brand value, Sprint and Softbank’s turnaround efforts may not have a great impact. The US telecom market is largely saturated, and it may be difficult for Sprint to steal customers, especially from Verizon and AT&T.

Do you think the Softbank-Sprint deal will change the telecommunications industry in the US? Will Sprint be better able to compete with Verizon and AT&T, or will Sprint remain dwarfed by these two telecom giants? Don’t be afraid to leave your predictions or thoughts in a comment!

– Kara

Federal Reserve Announces Open-Ended QE3 – Markets surge, but will it last?

Following disappointing employment data and sluggish economic growth, investors have been eagerly anticipating further stimulus from the Federal Reserve (also known as the Fed). This Thursday, as reported in the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced the widely anticipated third round of quantitative easing, but QE3 came with surprising features that differ from the prior programs. In the past, the Federal Reserve purchased Treasury securities, but QE3 provides for purchasing $40 billion of mortgage-backed securities each month. The Fed set no limit for these purchases, and instead will stay committed to QE3 until the economy actually improves.

Ultimately, the Fed’s mission is to promote economic growth by stimulating the markets, boosting investment, and encouraging spending. The stock market’s immediate reaction to Bernanke’s press conference speaks well for QE3’s impact on investor confidence, with the Dow Jones Industrial Average jumping 206.51 points on Thursday to close at 13539.86, its highest since December 2007. This stock market gain represents a positive reception of the Fed’ s press conference by investors, indicating that the QE3 program could be the boost that the economy has been waiting for to get back on track. According to Bernanke, the mortgage-backed securities purchases under QE3 will lower long-term interest rates and guide investors to assets like stocks and gold, while helping housing markets stabilize.

Although the stock market responded exuberantly to the Federal Reserve’s announcement on Thursday, this surge could be fleeting. Many economists remain doubtful of its future success, and even Bernanke qualified QE3’s economic impact at the press conference on Thursday when he admitted, “We’re not promising a cure to all these ills, but what we can do is provide some support.” The Fed considers ‘these ills’ to be largely indicated by unemployment data, and so the size of the open-ended QE3 program will likely grow and grow as the labor market continues to struggle.

Do you think QE3 will be successful in stimulating economic growth? Do you agree with its ‘open-ended’ provision, or do you think its size should be predetermined?

– Kara