By Justin Asher, Head of Marketing and Strategy at upnup
Unless you’re from a family where the phrase “money is no object” is in regular and unironic rotation, chances are that you’re feeling the effects of inflation and increasing energy costs. If you were to find out, for instance, that South Africans are now paying R600 more for the same grocery basket than they were a year ago, you probably wouldn’t be that surprised. But what if I told you that even your savings are vulnerable to that self-same inflation?
That’s because, apart from a few select accounts, the interest rates offered by most major bank accounts fall below the rates of inflation we’ve seen in recent months. So, even though the overall amount in your account keeps growing, you’re effectively worse off than you were before.
While that effect might be slightly ameliorated by rising interest rates, it nonetheless illustrates why it’s still so important to have alternative savings and investment vehicles. And despite the ongoing crypto winter that started in late 2022, Bitcoin and USDC, for example, remain fairly reasonable alternatives to cash savings.
The problem with saving in ZAR
That’s especially true in an economy as volatile as South Africa’s. If you live in a low-income society and save in rands or some bank investment product, inflation will eat your returns, and you will never get ahead.
Remember, South African inflation isn’t just driven by the same factors causing rising prices across the rest of the globe. Domestic issues, such as load shedding and diminished port and rail capacity play roles too, especially when it comes to supply chain constraints. Perhaps more damaging, however, is the volatility of the rand.
In the 12 months between October 2021 and October 2022 alone, the currency lost more than 16% of its value against the dollar. It’s also expected to keep falling in the coming months. That drives up import costs, from both the US directly and the large number of companies around the globe that use it as the default currency for trading goods.
While there may eventually be some respite from that volatility, anyone trying to save using traditional finance mechanisms is still likely to be left worse off at the end of the day.
Banking on Bitcoin
That means that anyone aiming to be serious about saving should explore the other available options. And if you take a zoomed-out view, there’s a very clear case to be made for Bitcoin and USDC.
That might seem like a strange statement, coming as it does in what many still believe is a crypto winter. But at the time of writing, a single Bitcoin was worth more than R100 000 than it was at the beginning of the year. That represents an increase of more than 40%. At current prices, it’s also valued higher than it was in late December 2020, a time when many were amazed at how rapidly it was growing. And for USDC, it is fully backed by U.S. dollar assets and the value of one USD Coin is always equal to the value of one U.S. dollar, this value never changes.
It’s also worth remembering that Bitcoin was the best-performing asset of the decade leading up to March 2021. If you’re looking for an inflationary hedge, that’s hard to beat. And with a growing number of regulators around the world tackling Bitcoin, consumers are less likely to be taken advantage of by bad faith actors.
Automating the savings habit
Even once you’ve decided to use Bitcoin as a savings and investment vehicle, however, being disciplined enough to actively save can be challenging. That’s why it’s best to automate saving as much as possible and accumulate your Bitcoin for the long term.
Automating saving is hardly a new idea. Most South Africans with a bank account have the option of a savings pocket (which allows them to round up their day-to-day spending), after all. But the problem with those kinds of savings products is that the money isn’t really put to work unless the account owner ensures it is.
It’s part of the reason why, when we built upnup, we decided to take automation a step further. As such, any spend that our users roundup is converted to your choice of Bitcoin, USDC or even ZAR, every month. It’s also why we allow users to automatically set aside a specific amount every month.
It means you can save without thinking and with money that they would’ve otherwise spent anyway.
Steering clear of uncertainty
Ultimately, many of the factors that have led to the current global economic uncertainty and inflation are unlikely to shift in the near future. As such, anyone trying to save and build for the future is potentially better off using alternative investment vehicles. Knowing that, and factoring in the very clear benefits offered by a cryptocurrency like Bitcoin or one pegged 1:1 to the US Dollar like USDC, it remains a much better bet than cash on that front.