You may have heard of stablecoins like USD coin, but what are they exactly and why are they seen a great hedge against the depreciation of the rand versus major currencies like the dollar? Revix separates fact from fiction.
Claim: USDC is a better cryptocurrency than bitcoin
Fact and myth … It depends on what you’re looking for. Unlike bitcoin, USDC is a stablecoin, which gives it different traits that may benefit certain investors. Stablecoins are a type of cryptocurrency programmed to track the value of another asset like government monies or gold.
They are cryptocurrencies backed one-to-one by an underlying government fiat currency (US dollars or euros) 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, the value of one coin is US$1.
- A rand hedge: USDC gives you US dollar exposure. By holding USDC, you are dodging the effects of rand depreciation and protecting your wealth in the process.
- Low volatility: USDC provides a stable dollar-based value, giving it zero volatility against the dollar.
A good rand-hedge investment
Fact. South Africans have a unique need for US dollar exposure, the reason being that the South African rand depreciates against the dollar at roughly 5% a year, every year.
This means it’s increasingly challenging for South Africans to accumulate international wealth while saving in a currency that’s making them 5% poorer every year. This is why you may hear the word “rand hedge” at your dinner table. In essence, it means you get exposure to an asset that “hedges out” this 5% leak.
If you had taken R1 000 and converted it into US dollars 10 years ago (earning zero interest), it would be worth R2 100 today, while your rands would still be worth R1 000. This just shows you how much buying power you would have lost over the last 10 years if you chose to hold your wealth in rands. In fact, you’ve lost out on 7.7% year-on-year growth and 110% in total — that’s a -52.38% loss in wealth.
Stablecoins can help you stop this wealth erosion and make it work for you, not against you.
Stablecoins are less volatile than other cryptos
Fact. Due to the nature of stablecoins being a digital version of fiat money, they are inherently less volatile compared to other cryptocurrencies. In fact, its volatility is essentially zero as it tracks the US dollar. When comparing this lack of volatility to that of bitcoin, one of the most volatile assets in the world, it becomes quite clear that stablecoins would be far less volatile.
For example, USDC’s 90-day volatility against the US dollar is 0.98%, while bitcoin’s 90-day volatility against the dollar is 94.7%
It is safe for me to save in USDC
A relative fact. The facts:
- USDC is a stablecoin.
- Its volatility and price risk is negligible.
- USDC tracks and is fully collateralised at one-to-one against the US dollar.
While USDC is safe when compared to any other cryptocurrencies, all cryptocurrencies have inherent risks. But it’s not only crypto — all investments carry risks, and you stand the chance of losing more than you put in. This is what makes the market what it is, however, and produces returns.
Yes, USDC is not insured, but most banks with insurance only cover you up to a certain amount. Remember African Bank? How many people do you think got their money returned to them? The risk-of-loss issue only comes into play if the exchange you bought the USDC on went out of business. Therefore, you should make sure your exchange is secure and fully collateralised.
At investment platform Revix, you can gain access to USDC and easily add it to your portfolio. Revix is a fully collateralised platform with a greater than 1:1 collateralisation ratio and holds your assets on multiple multi-signature encrypted wallets all around the world. This is done to ensure that your assets are in the safest hand possible.
Revix is offering zero fees buying USDC on the platform for a week; and is also releasing a USDC Flexible DeFi Savings Vault in the coming week.
This is a US dollar-denominated savings account that offers an earning-by-minute interest rate well above market (prior 12 months: 4.33%), and best of all, there’s no lockup period.
So, if you’re looking for a rand hedge and a stable way to grow your wealth, then this is the product for you.
Brought to you by Revix, the simplest, effortless and safest way to invest in crypto.
This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience and investment objectives and seek independent financial advice if necessary.
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