We’ve all been there, losing money on account of something or the other. Maybe you lost your wallet. Maybe you chose to whip out a few notes near an open window. Maybe you donated it to a lost cause, like that friend who promised to pay you back, but never has (and never will).
No matter what though, you’ll never get anywhere near the incredible implosion of Bill Hwang, whose company Archegos Capital Management lost a whopping USD 20 billion in 2 days. It is, without a doubt, one of the most spectacular financial missteps in modern history.
Who on earth is Bill Hwang?
Good question. Hwang, now 57, was once regarded on Wall Street as one of the greatest traders on the block, and you’ve probably never heard of him, just as you never heard of his nosedive into infamy.
Since 2013, Hwang grew a measly $200 million fortune into a mind-boggling pile of cash that would be the envy of Scrooge McDuck, and was worth $30 billion at his zenith. Had he cashed in his stocks, he would have joined the ranks of the world’s richest billionaires without blinking an eye. Remember; there are wealthier people than him, but their assets were largely illiquid: businesses, real estate, complex investments, sports teams, and artwork. Theoretically, Hwang had enough liquidity to be laughing all the way to the bank.
And then, in two short days, it was gone. Poof. Just like that.
How did this happen?
Hwang kept a low profile, and used swaps, a type of derivative that gives an investor exposure to the gains or losses in an underlying asset without owning it directly. He didn’t like to show his hand or be too high profile, which is why few knew of him outside a select circle. Think of him as an elusive whale, the Moby Dick of investing. By using swaps, the identity and size of the positions taken by this Moby Dick were hidden from Captain Ahab. Heck, even the firms that financed his investments couldn’t see the big picture.
And then, the cookie crumbled.
Hwang’s playbook saw him use borrowed money to leverage his positions, and when Archegos defaulted on the loans taken out to fuel the massive machinery powering a massive $100 billion portfolio, it sent shockwaves through the financial world. Banks dumped his holdings like a hot potato, stock prices were savaged like a babe left to the wolves. Investors were left licking their wounds: Credit Suisse Group AG lost $4.7 billion, and Nomura Holdings Inc. were staring at a loss of about $2 billion.
Having ploughed most of its borrowings into a handful of stocks – such as ViacomCBS, GSX Techedu, and Shopify – Archegos had a highly concentrated portfolio, and kept its banks in the dark by trading via swap agreements. Banks extended him leverage and cemented his position in the underlying asset (such as stocks), with Archegos gaining (or in this case, losing) from changes in the stock price. But critically, the bank shows up in filings as the registered holder of the shares.
Thus, lenders didn’t know the extent of his leverage, or that he had over-extended himself with these very stocks by jumping into bed with other banks. And so, when it all came crashing down, it did so spectacularly.
Memories of meltdowns past
While Archegos’ collapse does evoke memories of financial meltdowns of yore, it didn’t cause a ripple effect of market losses because of good fortune, and perhaps character on Hwang’s part. His lenders, though, should have lent more scrutiny into his dealings, and leverage, and not played Russian Roulette with a loaded Bazooka.
As long as transparency remains at issue at the top of the investing pyramid, whales such as Hwang will continue to roam free. But there’s a parable in there for us all; never bite off, or invest, more than you can afford to chew on. There’s some food for thought.
The story of Tiktok and beyond
As social media apps like Facebook, Instagram, and Twitter were staying strong in the digital age, TikTok seemed to appear out of nowhere to share the thunder with the social media giants mentioned earlier.
TikTok is an entertaining, addictive app that managed to win over the hearts of people, mainly the youth. It is a short-form video platform, has perhaps become the hottest app ever as it has over 2.3 billion all-time downloads. The growth of TikTok has been exponential.
Right after the collaboration with Musical.ly, ByteDance launched TikTok. It instantly got the reception that was expected to reach around 800 million active users. Not just the youth but people from all age groups made it on TikTok. It was also known for the creation of jobs, as “influencers” made huge profits online.
TikTok in India saw a huge rise in the number of users (over 200 million). But just when TikTok was expanding in India, India’s long-time dispute with China seemed to be ignited again. In a move that month befitting Prime Minister Narendra Modi’s “Make in India” initiative, the Indian government removed 59 Chinese-made apps, TikTok among them, citing national security concerns.
Not only was Tiktok hit hard, but also the influencers lost a majority of their livelihood. There were petitions, protests to bring TikTok back but none of them worked. Suddenly, 200 million people had to live in a post-TikTok era. Many apps like MX TakaTak, Josh, Roposo, etc. tried to replace TikTok in India, but could not create the impact TikTok did. After that, social media giants like Instagram and Facebook decided to quickly take the stage and launch ‘reels’ which did have a significant impact on the TikTok audience but failed to connect with the ‘hinterland’ part of India like TikTok.
There is also the grisly undertone of ‘classism’, as TikTok succeeded not just because of the content on it, but who was on it. Even as Facebook, Instagram, and the likes were flooded with users from urban India, TikTok gave India’s hinterland creators a voice. Once it went dark, these erstwhile TikTok users faced a deluge of criticism, outright hate, and a much reduced fan following. Even as the Indian audience continues its search to find the right successor of TikTok, many look forward to TikTok’s return with bated breath.
Credit cards for India’s unbanked, now a reality
Credit cards are an excellent way to build credit and make important purchases when cash is a bit tight. However, not everyone has access to a credit card, and this is particularly true in India, where financial inclusion remains a challenge. Across India, approximately 400 million people cannot “afford” a credit card, leaving them out of the financial mainstream and without access to a critical financial instrument. One startup, named GalaxyCard, provides a digital credit card specifically to these low-income individuals overlooked by others. And they issue these cards within 3 minutes.
This FinTech startup ties up with multiple channels like UPI, in-app services, and even offline. Around 1 lakh digital cards have been issued until now, with annual revenues touching Rs. 1 Crore.
Amit Kumar, who previously founded the mobile-based payment application firm Eashmart, which was eventually bought by PayUMoney in 2014, co-founded GalaxyCard with his friend Gunjeet Singh. The latter was closing down his own logistics firm Truckload at the time, after repeated stints as a product manager.
How does it work?
The income model of the firm is comparable to that of a traditional bank, but with smaller ticket sizes. The credit limit lies within a minimum of Rs. 1,000 and a maximum of Rs. 25,000. A user can begin with Rs. 1,000, and when the system collects additional information (such as how the money is spent, repayment time, overdue, other sources of income, dependency, and so on), the limit rises to Rs. 5,000, then Rs. 25,000, but remains below the user’s total steady income. The ‘bump up’ is based on the user’s financial situation, and it is thoroughly scrutinized by the platform to keep dangers of default to a minimum.
As fintech rises exponentially, companies tend to change their business model as technology and requirements evolve. If India’s digital banking ecosystem is to grow, it must look beyond the pool of users in urban cities, and bring in those within India’s hinterland to its fold. GalaxyCard is an interesting solution to a long-time problem faced by the unbanked, and could well solve rural India’s credit conundrum.
CoinSwitch Kuber: The story of India’s largest crypto exchange
The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.
In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.
Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.
CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”
Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.
Evolve or perish: The eternal organisational dictum
Transforming the work system in India
The story of Tiktok and beyond
Health4 days ago
Dr. Manjula Pooja Shroff, MD & CEO of Kalorex Group, offers a view of a post-pandemic world.
Business4 days ago
Tongawala to Masala King: How a School Dropout Became the Crorepati face of MDH
Business2 days ago
Mukesh Ambani: The newest addition to the $100 billion club
Leadership3 days ago
Shaji Thomas: The Indian Superhero who is saving the Amazon Rainforest
Business3 days ago
Ramesh Babu: A Story Of Rags to Riches
BFSI3 days ago
Cyberattacks vs crypto exchanges: CoinSwitch Kuber, WazirX, and ZebPay explore a possible solution
Business1 day ago
Credit cards for India’s unbanked, now a reality
More5 days ago
Squid Game, Netflix’s runaway hit that almost never got made