The ONLY Thing You Need to Know About Bitcoin - The 5 Minute WrapUp by Equitymaster
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The ONLY Thing You Need to Know About Bitcoin

Jan 6, 2018

kunal thanvi, Editor, The 5 Minute Wrapup

Bitcoin doesn't matter.

What? How can he say that? See how much money it's made. How can anyone in this day and age think bitcoin doesn't matter. It could change the way we use money. It could change the WORLD!

Yes, yes. I know all of that. But hear me out.

Bitcoin is certainly a very popular cryptocurrency today. But it is exactly the same as some 1,200 other crypto currencies. And I bet you can't even name 12 of those. Because...they are all worthless.

Bitcoin keeps rising in fame because it came first, it has the novelty going for it. It has a GREAT story - good job dear Satoshi Nakamoto, faceless inventor of bitcoin - we are all duly intrigued by you. And by the thought that you are on your way to becoming...

...The World's First Trillionaire

What a great story, right? Makes you want to grab onto his coat-tails and ride into the future.

But the future is not in this coin (which isn't even a coin)...

The future, I believe, is in the technology behind the coin.

So, I'll start again.

Bitcoin doesn't matter. Blockchain - the technology on which it rests matters.

Bitcoin is not brilliant in itself - it is a brilliant use of blockchain.

Bitcoin has no value - it is nothing - it is air. Less than air - at least air has some use. Blockchain, on the other hand, is a cutting-edge technology that could not only change the financial world, but several other parts of our lives.

What's so brilliant about blockchain?

So here's a technology that is on the verge of changing everything. It has been called 'the most transformational & misunderstood technologies of our time.'

Misunderstood why? Because nobody gets it. Here is the most transformational technology of our generation, probably, and we talk about it constantly, yet we know nothing of it.

We don't know how it works. We don't know how it can be used. And did we know, that Indian banks are starting to use blockchain to prevent fraud...? According to cointelegraph.com...

  • In February, State Bank of India, India's largest bank, took an initiative called 'Bankchain' to share data between all Indian Banks using Blockchain technology.

    In May 2017, Bankchain started providing services to share AML/KYC data across banks. In November, the Bank launched a Blockchain-based KYC system for its own verification purposes and announced plans to beta test Blockchain-based smart contracts.

    The technology was also implemented by other major Indian banks including ICICI, Tech Mahindra, Yes Bank and Axis Bank.

So, what am I saying, don't buy bitcoin?

Not at all. Buy or don't buy - that's up to you. Remember, I'm a die-hard value investor - I don't see value so I won't buy it. But you need to adopt a different lens for this anyhow. There is no way to know where this will go - if anyone tells you they know, then they are much too pompous for you to pay attention to.

If you do buy - do it smartly. Only put in a tiny percent of your investable wealth. Make sure you understand what the government says about this (it's not regulated yet - but, you know how they are...).

But what I am saying is - make sure you focus on what really matters. To understand if Bitcoin will ever really have value - we must understand blockchain. To understand if cryptocurrencies are the future - we need to understand bitcoin.

To understand how this technology could be adopted by virtually every industry in the future, and possibly be used by billions of users - we need to understand it now - before everyone else.

And to understand blockchain, you need a brilliant resource that can tell you what you need to know in a simple, none-too-technical fashion.

Editor's Note: We have just the resource for you. We've been working to bring him to you for a while now - but you need wait no more. Click here to get to it right now. Don't miss it!

Consumer Durables & Realty Index Outperform in 2017

2017 was a surprising year to say the least. Notebandi was supposed to be a major hurdle for Indian stocks. Realty segment was to have the biggest adverse impact post Notebandi. While Real estate prices pan India remained stagnant, stocks were anything but.

The S&P BSE Realty Index grew by a staggering 98% in CY 2017 alone, making it one of the best performing sectors on the Index. The government's focus on affordable housing and RERA (Real Estate Regulation Act) gave investors hope of a revival in the sector.

Best & Worst Performing Sectors - S&P BSE Index

Post Notebandi came GST. This was also supposed to hamper day to day operations of companies until the whole GST process was streamlined. Consumer durable stocks remained immune to the disruption and logged in a 99% growth. A healthy monsoon also helped boost investor sentiment in consumer durable stocks.

It is also important to note that the dual effects of Notebandi and GST did show on earnings. Most of the companies reported below par earnings in the past 2-3 quarters. The market though discounted these in expectation of a much better 2018.

For the premium valuations that stocks in these sectors command right now, it is important that earnings catch up with valuations in the coming few quarters.

Government Look at PSU's to Maintain Fiscal Deficit

India has reached 112% of the budgeted fiscal deficit by November 2017 i.e. 8 months of the current fiscal year. The government now has 4 months to maintain its fiscal deficit target of 3.2%.

The government will be looking at tax revenues to help its cause. Tax revenues have been at 57% of its target. The government expects to meet its target as a majority of its tax receipts are back loaded.

On the other hand, non-tax revenues have disappointed. Non-Tax revenues basically consist of profits from public sector companies and Reserve Bank of India, dividends, spectrum allocation. RBI dividend proceeds to the government were much lower than last year. This was majorly due to the unexpected costs of printing currency during Notebandi.

The government might turn to public sector units PSU's to splash dividends to help maintain its fiscal deficit target. It has already asked 12 state run firms for a 30-100% payout of their 2016-17 or 2017-18 profits as dividends. While this money could have been used for capital expansion of PSU's for improving capacity and efficiency, it might end up bailing out the government. In the long run though, this is anything but an ideal situation for PSU firms.

While PSU's are in a fix, we are seeing the early signs of revival in capacity expansion of the private sector. The pertinent question here is, which company is set to benefit the most from such capex plans?

It's neither a bank nor an engineering, cement, or steel company. Rather, it's a company that is riding the tailwinds of a Megatrend that The India Letter team has identified.

What's more, the usually overpriced stock is currently close to a 52-week low.

Click here to download the special report - Four Stocks To Ride India's Growth Wave

What the Markets Looked Like This Week

Global stock markets ended the final trading week of the year on a positive note. US Benchmark index Dow Jones crossed 25,000 during the week to touch a record high. Strong corporate earnings, commodity price hikes have been the contributing factors for this record run.

Also, the recent tax amendments favoring US corporates passed by President Donald Trump has been appreciated by investors. US stocks ended the week higher by 2.3%.

European indices were also on the rise with technology stocks leading the way. Oil companies also rallied on back of rise in crude oil prices.

Stock markets in Asia also followed global sentiments. Japanese Index Nikkei touched 23,000 for the first time since 1992. The gains were mainly attributed to improvement in its domestic economy. Japanese stocks finished higher by 4.2% for the week.

Back home, Indian stocks ended the week marginally higher. The government gave the GDP growth estimate of 6.5% for FY18. This is lower than FY17 GDP growth rate of 7.1%. Growth in the first half of FY17 was hampered by the after effects of demonetization and GST. The situation is likely to improve in the second half of the fiscal year. Metals, consumer durables and capital goods led the rally for the week. The Indian stock market ended the week higher by 1.1%.

Investment Mantra of the Day

"If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes." - Warren Buffett

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