Our article focusing upon the inevitability and importance of stablecoin regulation given the success of fiat-backed stablecoins indirectly introduced another subject: savings in the time of inflation. How are investors already using stablecoins as a savings account?
Regulators across the world seem to approve of fiat-backed stablecoins, whether begrudgingly or not, because they hold to their pegs through the simplest of safeguards. That is, one US dollar or euro (for example) for every coin “minted” or released.
It works, virtually flawlessly, as it seeks not to eradicate the fiat structure but destroy the incumbent idea that transfering cash should cost anything more than 1 or 2 USD. Frankly, it should cost nothing.
In addition, using stablecoins as a savings account opens up the door to a much more sophisticated “crypto” portfolio arguably able to beat traditional returns, particularly during global bear markets. Fiat-backed stablecoins serve as gateways to much greater yields and capital gains.
This article delves into the wisdom of embracing stablecoins as a savings account in this year of rampant inflation.
The Cost of Cash Savings
What do we mean by the cost of cash? Simply put: it costs money to hold money. The opportunity cost we hear of in economics class actually takes cash out of your pocket. The technical term for this is inflation.
For July 2022, the headline consumer price index rose by a less-than-expected 8.5% in the USA.
In other words, the value of your US dollar decreased by 8.5% in the past year. If you did nothing with one dollar, you lost 8.5 cents.
In this way, inflation forces you to invest, to put your capital to work. This remains the nature of modern economics, which introduced the common term of “healthy inflation” at 2 percent. As economies grow, businesses in general want to increase their profits, leading to noticeable price rises over the long term.
However, what’s distinctly wrong with 2022 is the reward for saving, or traditionally known as “interest.” For the USA, the national average savings account rate is currently 0.13 percent. Is that worth opening an account? The paperwork?
Using Stablecoins as a Savings Account
Stablecoins open up new doors and new financial opportunities in tandem.
Towards the latter part of the last decade, getting involved with crypto felt like trusting your life’s savings with a dodgy “digital wallet” that worked in a manner beyond full comprehension. And this digital wallet could be hacked. Therefore, you had to make your wallet “cold” by taking your wallet “offline” and writing your “private key” down on separate sheets of paper.
Because you could simply lose your life savings too, in the way you might lose your TV remote.
However, coronavirus taught us the sheer potential of shifting all of our workflow to an encrypted cloud safe from hacking and manipulation. Now, work-life balance exists. Remote working feels the norm. An office needs a reason to call you in.
Cryptocurrency exchanges now automate the wallet process for you, facilitating trading as an online broker would, while often providing insurance in the event of hacking or theft. Opening a new account for stablecoins generally takes less than 10 minutes from the moment you open your laptop.
In addition to eliminating transfer fees, stablecoins open the door to “staking,” or the common practice of depositing or staking your stablecoins for use by a specific blockchain or protocol.
Any one protocol is the product of an entrepreneur or institution trying to disrupt the incumbent issues with traditional finance or the traditional brick-and-mortar world. These are the folks working to make your life easy while hoping to make a digital buck along the way.
For example, the world’s largest stablecoin by market capitalization, Tether, currently pays an annualized staking rate of 6.02%.
Crypto-to-Crypto
Deltec takes the common practice of providing access to traditional assets and digital assets simultaneously, but gives holistic, actionable advice along the way. Using stablecoins as a savings account, particularly in the context of a mixed portfolio, yields a tertiary benefit beyond free transfers and high deposit rates.
Crypto-to-fiat transfers can turn costly, especially when working with alternative cryptocurrencies not among the massive Bitcoin or Ethereum blockchains. Crypto-to-crypto remains a solid alternative as it offers substantial liquidity.
For example, Tether currently has a 24-hour volume of 69 billion USD equivalent. This is a simple measure of how much Tether was traded on a rolling, daily basis.
Cryptocurrency liquidity pools tend to utilize major, liquid coins as a central segway between multiple other cryptos. This process is known as “routing.”
Using stablecoins as a savings account offers 5 key benefits:
- Eliminates transfer and similar banking fees
- Widens the range of eligible transferees to anywhere on the globe
- Offers above-average staking rates
- Offers the chance to take part in very high-yielding liquidity pools
- Opens the door to many other cryptocurrencies
While many crypto enthusiasts seek to reduce the reliance upon fiat and its possibility of extraordinary inflation, we count our victories where we can. These essential benefits to stablecoins both democratize the world’s access to capital and offer the financial means to a better life for all.
Disclaimer: The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group, www.deltecbank.com.
The co-author of this text, Conor Scott, CFA, has been active in the wealth management industry since 2012, continuously researching the latest developments affecting portfolio management and cryptocurrency. Mr. Scott is a Freelance Writer for Deltec International Group, www.deltecbank.com.
The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees. This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service, or offering. It is not a recommendation to trade.