83 i chronicle

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Cover Story An introduction to Bitcoins …

Cover Story An introduction to Bitcoins
Outlook Steel
Stats Gender Gap at work
Emerging Country Malaysia
In Focus Not so sweet! Sugar crisis in U.P.

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  • 1. Investeurs Chronicle November 2013, Volume: 83
  • 2. Cover Story An introduction to Bitcoins Bitcoins have been in the news recently for a bunch of very interesting reasons. For starters, the value of a Bitcoins have skyrocketed. (And that is an understatement.) A man who had invested about $25 in Bitcoins in 2009 was more-than-mildly surprised to realise they are now worth about $ 886,000. Bitcoin is a peer-to-peer digital currency that functions without the intermediation of a central authority. The concept was introduced in a 2008 paper by a pseudonymous developer known as "Satoshi Nakamoto". In the virtual world, a fraction of a Bitcoin can get you anything – guns, lasers, t-shirts, cosmetics, web hosting solutions, a lesson in spoken English. Bitcoin has been called a crypto currency because it is decentralized and uses cryptography to control transactions and prevent double-spending, a problem for digital currencies. Once validated, every individual transaction is permanently recorded in a public ledger known as the block chain. Payment processing is done by a network of private computers often specially tailored to this task. The operators of these computers, known as "miners", are rewarded with transaction fees and newly minted Bitcoins. However, new bitcoins are created at an everdecreasing rate. Bitcoins are stored by associating them with addresses called "wallets". Wallets can be stored on web services, on local hardware like PCs and mobile devices, or on paper print-outs. Large fluctuations in the value of Bitcoin have led some to question its ability to function as a currency. In addition, its deflationary bias encourages hoarding.This Economics reduces the use value of a currency, and has been the downfall of other private currencies. However, currently Bitcoin does see some use as a currency.
  • 3. Cover Story Bitcoins are often traded as an investment. Critics have accused Bitcoin of being a species of Ponzi scheme. A case study report by the European Central Bank Bitcoin speculation observes that the Bitcoin currency system shares some characteristics with Ponzi schemes, but also has characteristics that are distinct from the common aspects of such schemes. Bitcoins have been described as lacking intrinsic value as an investment because their value depends only on the willingness of users to accept them. Derivatives of bitcoins are thinly available. Certain investment funds have shown interest in Bitcoin with Peter Thiel's Founders Fund investing US$3 million, and the Winklevoss twins making a US$1.5 million personal investment. A Bitcoin ETF may also soon be on offer. Many have mentioned speculative bubbles in connection with Bitcoin, and Reuter’s journalist Felix Salmon correctly predicted the bursting of one such Bitcoin bubble in April 2013. Some have suggested that Bitcoin is gaining popularity in countries with problem-plagued national currencies, as it can be used to circumvent inflation, capital Alternative to fiat currency controls, and international sanctions. Bitcoins are used by some Argentinians as an alternative to the official fiat currency, which is stymied by inflation and strict capital controls. In addition, some Iranians use Bitcoins to evade currency sanctions. Because bitcoins are a cryptographic peer-to-peer digital currency, people are able to send money worldwide almost instantly for very low transaction fees. Such The privilege and perils of Bitcoin a benefit has attracted consumers, investors and businesses of all sizes to the currency. But it's also appealing to cybercriminals for many of the same reasons. "Criminals have been keeping an eye on bitcoin for using and stealing for quite a while, and now that the exchange rate is at roughly $700, the attention of criminals is obviously going to increase," said Roel Schouwenberg, a senior researcher at the security firm Kaspersky Labs. Criminals are also drawn to the currency because its almost impossible to trace to an individual, so it's easy to anonymously steal and spend bitcoin, Schouwenberg said. And unfortunately, because the currency is not regulated by any country or central bank, consumers and businesses stand to lose a lot of money if their bitcoins are hacked. "If you are a victim of cybercrime or fraud, it would be covered by your bank. But who do you go to if someone steals your bitcoins? Or if an exchange disappears or bank collapses? Who is going to cover you?" said Raj Samani, McAfee's chief technology officer. Thousands of bitcoin investors found that out the hard way last month when millions of dollars disappeared in one fell swoop after a virtual exchange vanished. The Chinese bitcoin exchange Global Bond Limited (GBL) disappeared on Oct. 26 and with it went as much as $5 million, Samani said.
  • 4. Cover Story In India, however, there’s almost no physical outlet or operation that accepts Bitcoins yet. One buzzing industry in India where which seems to be super-excited Bitcoins in India about the usage and potential appreciation of Bitcoins is that of technology startups. Many startups now prefer dealing in Bitcoins while setting up a business, instead of cash. This is because the crypto-currency can be integrated into almost any software build that can be monetized. As of now, there is no regulation that says owing or transacting in Bitcoins is illegal. There’s none to say otherwise, either. So, as of now the crypto-currency circulates unregulated in India. Countries such as China and most parts of Europe have taken a similar stance for the moment. Wait and watch. However, in case someone uses the system to evade taxes or violate any foreign exchange regulations, the courts could possibly strike it down as illegal. When a currency has been on a hot streak and is perceived as being overvalued, it’s difficult to resist the temptation to buy some. The value of a Bitcoin is based Keep in mind on the exchange rate between two parties, most often driven by demand and supply, making it as vulnerable and unpredictable as stocks or gold prices in the short term. A lot of people choose to stay away from Bitcoins because they look at Bitcoins as fiat currency – currency which has no intrinsic value. Another worry is that, considering how valuable Bitcoins are, people might just buy and hoard it and not spend it on anything productive. There are some things you need to keep in mind while investing in Bitcoins or any kind of crypto-currency for that matter. Because they are virtual, you need to take extra care to keep them safe. At the rate at which Bitcoins are appreciating, they are highly coveted and can easily be manipulated if someone manages to install a virus or malware on your PC. It’s safer to keep it in a digital wallets service such as bitcoin.qt or blockchain.io. However, this isn’t foolproof either as was highlighted by the recent case of an Australian Bitcoin “bank” which claimed hackers broke into the site or stole more than one million dollars worth of the digital currency. Also, Bitcoins are going to be circulated in restricted numbers. After it reaches a certain number, miners (people who mine Bitcoins) are only going to work to maintain the existing Bitcoin network and not produce any more. And last but not the least, if you already have some Bitcoins, hold on to them for the time being. You do not want suffer the fate of this guy from the US who sold about 10,000 Bitcoins to buy two pizza a couple of years ago. If he hadn’t given in to a pepperoni craving, he would have been sitting on about 4 million dollars now. Well, easy come, easy go!
  • 5. Outlook-Steel Steel prices are generally volatile, owing to the highly cyclical nature of the global steel industry. Rising raw material prices have a direct impact on steel prices as higher raw material prices induce a corresponding increase in steel prices. However, in the wake of lower demand, it becomes increasingly challenging to pass on raw material price hikes to consumers. Furthermore, overcapacity, glut in cheaper Chinese steel imports, economic conditions and shifts toward other substitutes significantly impact steel prices. Domestically, Steel prices are on a downward spiral in October after a surge in September as optimism about the festive demand has started wearing off, putting a question mark on the revival expected in the second half of the year. Reversal of rupee-dollar depreciating trends amid weak steel demand scenario is putting pressure on prices. Prices have started to come off their recent highs made in September. October steel prices are pointing towards a gloomy future. Long steel prices, which jumped 15% in September from the lows of July, have fallen almost 5% in October to Rs. 34,100 per tonne, industry data showed. Flat steel prices have also followed the same trend of decline in October from a year high in September. As on Oct 31, 2013 prices stands at about Rs 37,000, down from Rs. 41,000, a tonne in September. Gloss Credit Default Swap A financial swap agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, receives a payoff if the loan defaults. Stats Gender Gap at Work
  • 6. Emerging Country- Malaysia Malaysia is a federal constitutional monarchy in Southeast Asia. It separated by the South China Sea into two similarly sized regions, Peninsular Malaysia and Malaysian Borneo. Land borders are shared with Thailand, Indonesia, and Brunei, and maritime borders exist with Singapore, Vietnam, and the Philippines. Malaysia has a newly industrialized market economy, the economy of Malaysia was the third largest economy in South East Asia. In 2012, GDP per capita (PPP) of Malaysia stood at $492.4 billion. Malaysia's economy should grow at a faster pace of 5%-5.5% in 2014, from an expected 4.5%-5% this year, supported by favorable domestic demand and an improving external environment, according to the Economic Report 2013/2014. Malaysia is also externally competitive, ranking 12th (out of 135 economies) in the World Bank. Malaysia industrial sector accounts for 48.1 percent of total GDP or 63.4 billion US dollars. It is a highly open economy and a leading exporter of electrical appliances, electronic parts and components, palm oil, and natural gas. Malaysia’s total trade during the period of January-September 2013 was RM1.006 trillion, an increase of 2.4% compared with RM982.2 billion recorded for the same period in 2012. A trade surplus of RM43.21 billion was recorded for this period. Malaysia recorded inflows of US$10.16 billion in 2012 and maintained its ranking as the third-largest recipient of FDIs in Asean. Malaysia continues to be strong, with foreign direct investment (FDI) increasing to RM18.3bil in the first quarter of this year against RM9.6bil in the same quarter last year in the "World Investment Report 2013" Bilateral trade between Malaysia and India in 2013 could surpass the targeted US$15 billion (RM47.53 billion) Malaysia exported US$714 million of crude petroleum to India during the quarter ended April 13, 2013, about 30% higher than the corresponding quarter last year. However, the exports of E&E (Electrical & Electronics) products declined 17% year-on-year in the quarter to US$504 million. Malaysia bought refined petroleum products from India worth US$502.3 million, a 125% surge over last year’s quarter. Import of metals manufactures from India also skyrocked 316% to US$322 million. Vital Economic Statistics of Malaysian Economy Particulars Details GDP (nominal) $340.002 billion (2013 estimate) GDP Growth 5.00% (2013) rate Currency Ringgit (RM) Credit Rating A- (S&P) A-(Fitch) A3 ( Moody’s) Fiscal Deficit 4.00 % of GDP (2013) Current account 7.90% (2012) Surplus
  • 7. Forex Not so sweet! Data from 11th November 2013 to 22nd November 2013 In Focus Sugar crisis in U.P. The sugar crisis in Uttar Pradesh is a clear product of a politics of division and brinkmanship that has been allowed to affect basic economic management. On 6078.8 0 20,490 .96 20,217 .39 5995.4 5 Sensex which sugar mills buy sugarcane from farmers, would be kept at the previous year's level of Rs 280 per quintal. But this is unlikely to appease private sugar Tuesday evening that they were suspending operations. While the mills said they couldn't afford to pay more than Rs 240 a quintal (they had paid Rs 280 a quintal last season), given the current price of sugar, farmer groups had lobbied for more 48400 - upwards of Rs 300 a quintal. Cane arrears in UP would mount to Rs 12,000- 30150 44650 29870 13,000 crore by March-April 2014 with the State maintaining the SAP at Rs 280/quintal amidst drop in sugar realizations and a lower paying capacity of mills. Meanwhile, the Centre is exploring options such as reducing the time period for re-export of imported sugar under advance licensing from the current 18 months to three months, besides increasing drawback on exports to bail out the crisis- Silver (1 Kg) ridden sugar industry. Also, the sugar mills may be allowed to get loans to the extent of excise duty paid by them last year for which interest would be paid from 111.05 63.30 63.02 106.18 Crude Oil ($/barrel) Minister Akhilesh Yadav announced that the state-advised price for sugarcane, at mills in the state - 65 of the 99 such mills had informed the state government on Nifty Gold (10 gm) Wednesday (20th November), in an effort to move beyond an impasse, Chief Dollar/INR the Sugar Development Fund. In reality, the key to the whole imbroglio is the state-advised price of sugarcane. Unfortunately, what ought to be purely administrative work has become a political decision. Successive governments have used it for political gains. Cane price, as a proportion of sugar price, has thus risen from 57.1 per cent in 2009-10 to 79.06 per cent in 2010-11, 81.36 per cent in 2011-12 and 88.88 per cent in 2012-13.
  • 8. About Investeurs Consulting Private Limited For a good business, finance is as crucial as vision, management and product. Intuitively then Business Finance plays a vital role in the business prosperity. We, at Investeurs Consulting Pvt. Ltd understand and appreciate the vitality of this discipline and the responsibility that comes with it. As Business Finance Consultants we realize that finance is an enabler that Domestic Trade Finance: Negotiation of Inland Letter of Credit Working Capital Management International Trade Finance: Capital Investment: Buyers’ Credit and Suppliers’ Credit Project Funding and Term Loan Factoring Private Equity contributes significantly towards realizing your business goals. We bring to the table 18 years of vast and vivid exposure to different businesses, a profound understanding of business and financial dynamics and excellent Team Chronicle Rating Assistance relationship with banks/ financial institutions. Akanksha Srivastava akanksha@investeurs.com Nidhi Gogia Harpreet Kaur nidhi@investeurs.com harpreet@investeurs.com Investeurs Consulting Pvt. Limited Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided. S-26, 27, 28, 3rdFloor,Veera Tower, Green Park Ext. New Delhi-110016, www.investeurs.com