Why crypto-currency is a better offshore investment than fiat currencies
According to a recent article by wealth manager Karlin Pather, any of the top five public companies has a market cap larger than the entirety of the South African JSE-listed companies’ combined worth. The ZAR/USD rate is a mere shadow of what it was 10 years ago. JPMorgan has predicted a 3% reduced growth for SA as a result of the recent riots. Citibank has cut its exposure to SA bonds and FX. And inflation continues to soar.
The rand is in trouble. And this combination of factors makes the equation simple: Holding onto ZAR in favour of a foreign currency is a foolish option right now for even the most casual investors. Offshore investments are the way to go.
The emergence of stablecoins – crypto-currencies that are pegged by the value of some underlying asset such as a fiat currency or a precious metal – completely changed the playing field for crypto-currencies.
Tether (symbol USDT) was the first stablecoin to emerge in 2014, pegged to the value of the US dollar. The company behind it keeps Tether’s price equal to the US dollar by maintaining one USD in assets for every unit of Tether it hands out.
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But the true wonders of crypto-currency only revealed themselves after the boom in decentralised finance (DeFi) in the summer of 2020. DeFi, which allows crypto-currency exchanges to offer financial services such as loans and interest-earning accounts without involving a middleman, has brought with it a plethora of services to the crypto-currency world that only traditional financial institutions could previously offer.
One of the key benefits of crypto-currency versus fiat currencies is that trades happen fast. The crypto asset is more liquid than a fiat currency and holding something like Tether means that an investor can essentially hold USD but carry out trades with the speed of crypto-currency.
OVEX, a prime brokerage and crypto-currency exchange with a valuation of $122 million, has implemented several sophisticated features that allow it to bring consistent returns to its clients. OVEX handles both non-stablecoins such as Bitcoin, Ether and Binance Coin, as well as stablecoins – Tether, TrueUSD (backed by the US dollar), and Binance USD (also backed by the US dollar).
For anyone wanting to put their ZAR in a stablecoin backed by the USD, OVEX offers a high interest-earning account that can bring gains of up to 20% annualised interest. By purchasing a stablecoin instead of USD directly, investors can also make use of OVEX’s crypto-currency-specific arbitrage gains, which have sometimes gone as high as 15% per trade. OVEX manages to achieve these gains using a unique method of buying crypto-currency at its UK-based exchange and then selling it instantaneously at its South African exchange, thereby capitalising on the price difference. South African exchanges usually lag in crypto-currency prices compared to foreign ones.
Find out more about OVEX’s Arbitrage service here.
For high-volume traders and institutional clients, OVEX offers a concierge over-the-counter service with extremely low spreads.
As an offshore investment, crypto-currency backed by the USD is far superior to holding USD on its own. Buying USD or EUR and “waiting it out” for the ZAR to get better precludes the additional option of making risk-free crypto-currency earnings during this current storm. By buying USD-backed stablecoins, an investor can earn steady gains through DeFi services while still hedging against the falling rand.