Investeurs Chronicle

November 2013, Volume: 83

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Story

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.

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.

Economics

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

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.

An introduction to Bitcoins

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 ever-

decreasing rate.

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Bitcoin speculation

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

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.

Alternative to fiat currency

Some have suggested that Bitcoin is gaining popularity in countries with problem-plagued national currencies, as it can be used to circumvent inflation, capital

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.

The privilege and perils of Bitcoin

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

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.

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Bitcoins in India

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

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.

Keep in mind

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

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!

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.

Gender Gap at Work

Stats

Outlook-Steel

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.

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 rate

5.00% (2013)

Currency Ringgit (RM) Credit Rating A- (S&P)

A-(Fitch) A3 ( Moody’s)

Fiscal Deficit 4.00 % of GDP (2013) Current account Surplus

7.90% (2012)

Figure Facts

In Focus

Forex

Not so sweet!

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

Wednesday (20th November), in an effort to move beyond an impasse, Chief

Minister Akhilesh Yadav announced that the state-advised price for sugarcane, at

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

mills in the state - 65 of the 99 such mills had informed the state government on

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

- upwards of Rs 300 a quintal. Cane arrears in UP would mount to Rs 12,000-

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-

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

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.

Data from 11th November 2013 to 22nd November 2013

Sensex Nifty

20,490.96

20,217.39

6078.80

5995.45

Gold (10 gm) Silver (1 Kg)

30150

29870

48400

44650

Crude Oil ($/barrel) Dollar/INR

106.18

111.05

63.30 63.02

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Akanksha Srivastava akanksha@investeurs.com

Nidhi Gogia nidhi@investeurs.com

Harpreet Kaur harpreet@investeurs.com

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. Investeurs Consulting Pvt. Limited

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