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Cryptocurrency – The Whales’ Game


wealthymatters

Cryptocurrencies have captured the public  imagination as the price of bitcoin et al skyrocketed and made lakhiers and crorepatis of both famous and obscure people. Never mind that many lost their fortunes even before they could start celebrating ! The adrenalin rush is a siren song to certain personality types……..

And I daily get calls, messages and e-mails asking what I think of cryptocurrency investments. The querants range from Sotheby’s-Gulf to small businesspeople from Russia. So here’s my answer : Are you a whale? Do you want to be one? Can you be one ?Do you fancy your chances playing against whales ?

Think:

Bitcoin was built by a tight-knit community of technology buffs and entrepreneurs, and a relatively small number of them own an outsized share of the cryptocurrency. As few as 1,000 people may own around 40% of all existing bitcoin.

As smaller investors enter the market drawn by the price action, the question to ask is whether those “whales” are in a position to take advantage of the newcomers?

Can whales actually coordinate among themselves to move the market? Read more of this post

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Virtual Equity


wealthymattersHave you ever wondered how billion dollar infrastructure projects are financed by the private sector in India? Here is the story:

Say there is a Rs.10,000-crore project, with a 70:30 debt-equity ratio. The promoter needs to put up Rs 3,000 crore as equity . Suppose he can scrape together Rs 1,000 crore. He will inflate the project cost to 15,000 crore.

His required  equity contribution now goes up to Rs 4,500 crore but he gets credit worth Rs 10,500 crore, more than enough to finance the entire project.

During implementation through promoter-owned companies, money will be taken out of the project, to fund a part of his equity contribution and to grease the palms that allow such an inflated project cost to go not just unchallenged, but actually blessed.

While implementing the project, he will start another project, take money out of it to fund the remaining part of the original project’s equity contribution and to service the loan on the first project once its construction is over. Then he will start yet other projects, to actually finance the second project, and so on. The first project will turn into a cash cow, if this string of loan-financed projects can continue to mushroom long enough for the loan on the first project to be fully paid off. Read more of this post

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