Jun 2021

Let’s talk about Crypto Savings Accounts and wealth preservation.

As the rand continues to depend on so many external factors, South Africans are looking for alternative wealth preservation vehicles. According to Google trend data, South Africans are interested in crypto. Looking at the search data, South Africa is ranked eleventh globally and second on the African continent behind Nigeria. So locals have an enthusiastic curiosity about cryptocurrencies and, by extension, crypto savings accounts. 

As with any financial decision, individuals need to do thorough research and understand the intricacies of all products and develop an understanding of why cryptocurrencies are more than just digital currency — they’re part of an asset class just like gold coins and medallions, fine art or property. Those considering crypto savings account should understand the underpinnings of blockchain technology before jumping feet first into the volatile crypto market. Here are some things to consider:  

What is the difference between Crypto Savings Accounts Vs Standard Savings Accounts?

In a normal savings account, those offered by your bank, the money is yours. Crypto-based savings accounts are different. Your crypto keys are lent out to other people who can use the crypto for a determined period. In exchange, the borrower agrees to pay you interest on the crypto that you lent. 

What about Interest?

Yields on cryptocurrencies can be higher more than the interest on normal savings accounts. This is because the supply and demand for crypto financing drives the interest rates.

What about withdrawing your cash?

Traditional savings accounts, all of their own rules and charges. So you need to check those with your bank before heading to an ATM or branch. However, crypto savings accounts may apply more restrictive limits on the frequency or amount that you can withdraw.

What about compound interest?  

An anomaly with certain crypto-based savings accounts is that interest may not compound. That means your initial deposit grows over time, but the interest on the growth does not compound. 

Some analysts call cryptocurrency a high-risk option because it is an alternative investment, and others see it as a unique asset class. Cryptocurrency is highly speculative, and the market is subject to significant valuation swings, raising doubts about whether digital currency does indeed offer investors safety during times of macroeconomic turmoil. Drastic market corrections could rattle novice crypto investors. Crypto is prone to major corrections as institutional investors buy and sell massive quantities. New investors should go in with open eyes and brace themselves for major dips and spikes. Gold coins and collectables are tangible, historically proven, and more stable for those looking for less adrenaline. Gold occupies the top spot in haven assets, including property, diamonds, and fine art. Rael Demby, CEO of The South African Gold Coin Exchange & The Scoin Shop, says,

“ gold coins withstand periods of crisis, fluctuation and inflation. They are a physical commodity. They are tangible. You can feel the weight of a coin. That’s very reassuring to clients.”  

One of the most striking differences between gold coins and cryptocurrency is that while the precious metal represents a physical object, cryptocurrency is entirely digital. That said, the nature of crypto has not been deterring investors. The pandemic has been a significant accelerant, with individual and institutional buyers fuelling demand. Many of cryptocurrencies early adopters are now billionaires, among the wealthiest people globally, and with the recent bull run, other investors have made massive profits.

So what to do with your crypto earnings and how to diversify your portfolio. Demby tells us that The Scoin Shop now accepts specific cryptocurrencies (BitCoin, Ethereum, USD Coin, Litecoin, Dai, Bitcoin Cash) as payment for gold coins and collectables. So you can cash out your crypto profits and buy gold—anything from Gold Bullion and Proof Krugerrands, rare ZAR Gold Coins to Modern Numismatic gold collectable coins. Demby advocates a diverse portfolio of different assets such as cash, property, shares, gold coins, and cryptocurrency. His recommendation is 10-15% in gold coins and collectables. “For most, wealth preservation is a focus. We are seeing a huge interest in gold bullion, silver and numismatics.” So why sell cryptocurrency for gold? Gold provides wealth preservation, store of value, currency hedge, and it combats inflationary concerns. As we continue to move into 2021, the cryptocurrency hype will continue to grow and evolve worldwide. Institutions will continuously, even if somewhat reluctantly at first, integrate crypto into payment systems, portfolios, and long term plans.

“I’m not anti-crypto. It evolved because people in the market were something other than the traditional currencies that we’ve had and whether that’s right or wrong, it’s something that the market has an appetite for. But It needs to be balanced against the immense power of gold and wealth preservation. No asset does it better,” concludes Demby.

  • Modern
  • Bullion 
  • Proof
  • ZARs

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