Calling the crypto market volatile would be quite an understatement; I mean, just look at the last couple of months! We all know that the cryptocurrency ecosystem can be a volatile place, and the unlucky few that finally got crypto exposure when Bitcoin was priced at $60 000 are probably feeling more than a little down at the moment. But what if there was another answer? A way to make stable wealth creation in a sea of volatility?
Just how volatile is crypto?
Bitcoin has seen its fair share of ups and downs over the past 10 years, and these price swings are explained by something called volatility. When looking at past Bitcoin volatility, we use the term “historical volatility” to paint us a picture of how risky the asset is.
Historical volatility is an indicator to show the extent at which a price may diverge from its average value in a given period. Hence, increased price fluctuation results in a higher historical volatility value.
Volatility in crypto is high when compared to traditional assets in specific sectors. Bitcoin has often been compared to Gold, Banking or Tech, so it’s only fair to compare those volatilities. If we use spot Gold (16% 90-day vol), JP Morgan (24% 90-day vol), and Tesla (70% 90-day vol) as a proxy for Gold, Banking, and Tech, we can see that Bitcoin (95% 90-day vol) clearly has superior volatility. So based on historical volatilities investors now know that the returns of Bitcoin fluctuate by approximately 95% quarter-over-quarter (90-day vol).
Volatility was worth its weight in gold
Although this volatility may scare potential investors, many have been rewarded greatly for this risk. Bitcoin has seen a 115% increase year-over-year over the last 10 years (+211 000% total return), making it the best-performing asset class in the last decade.
But if volatility isn’t your game, you can rejoice! Because there’s also a stable way of growing your wealth using cryptocurrencies, namely stablecoins.
Stable coins – Stable growth
Stablecoins are a type of cryptocurrency programmed to track the value of another asset such as government monies or gold.
Fiat-collateralized stablecoins are cryptocurrencies backed one-to-one by an underlying government currency (like USD or EUR) stored in a traditional financial institution.
Simply put, stablecoins are a digital version of fiat money and are pegged to that currency. For example, USD Coin (USDC) is a stablecoin that is pegged to the US Dollar, and as such, its value is $1.
The South African saviour
South Africans have a unique need for US Dollar exposure, seeing that the South African Rand depreciates against the US Dollar roughly 5% a year … every year. This is something that’s been going on for a while now.
This means that it’s getting increasingly difficult for South Africans to accumulate international wealth while they save in a currency that is making them 5% poorer every year. This is why you may hear the term “Rand Hedge” being thrown around your dinner table. In essence, this means that you get exposure to an asset that “hedges out” this 5% leak.
The graph below shows the effect of holding your wealth in Dollars vs Rands over the last 10 years.
If you had taken your Rands, converted them to Dollars (10 years ago) and just kept them earning zero interest, they would be worth R2 100 today, while your Rands would still be worth R1 000. That means you’ve lost quite a bit of buying power over the last 10 years if you chose to hold your wealth in Rands. In fact, you’ve lost +7.6% year-on-year and 115% in total.
Stablecoins can help stop this wealth erosion and make it work for you, not against you.
By simply taking your hard-earned Rands and converting them into Dollars, you are increasing your wealth by +7.6% a year.
But it gets better!
With the creation of stablecoins comes the creation of savings accounts.
With stablecoins comes the opportunity to create savings accounts or “Defi Savings Vaults” as Revix likes to call them. These Savings Vaults offer a fiat denominated saving account that earns an interest rate well above market (up to +7%).
“Stablecoins have allowed many South Africans to win two-fold. One, they get to hedge out their Rand risk and pick up an extra 5% year-on-year just by not holding a devaluing currency. Two, they get to put these US Dollars in a savings account that can earn between 2-7%, above and beyond the +5% saving they get from not holding Rands. That’s a possible +13% net gain every year. That’s a pretty big deal. Over 20 years, that 13% would translate to a +1 100% gain” — Brett Hope Robertson, Investment analyst at investment platform Revix.
Where can I find these solutions?
Investment platform Revix understands how hard it is to save, and saving in Rands can be a disheartening task when it comes to holding a weakening currency.
At Revix, you can gain access to USDC as a stablecoin solution.
USD Coin (USDC) is a 1:1 representation of 1 US Dollar and you can always redeem 1 USDC for US$1.00, giving it a stable price.
Take advantage of this launching, as Revix will be offering it as a fee-free product, which makes it better and accessible for you.
Revix is also releasing a USDC Flexible DeFi Savings Vault.
This is a US Dollars denominated saving account that offers an interest rate above market (Prior 12 months: 4.33%) with no lockup periods.
So if you are looking for a Rand hedge and a stable way to grow their wealth, then this is the product for you.
Through Revix, you can also gain access to their ready-made “crypto bundles”. Bundles allow you to own an equally-weighted basket of the world’s largest and, by default, most successful cryptocurrencies.