This is an opinion editorial by Julien Liniger, the co-founder and CEO of Relai, a bitcoin-only investment app.
Traditional banks are short of customers by not reflecting inflationary changes in the interest rates of the savings accounts they offer. On mediumthese accounts sit at 0.3% in the United States – a nominal rate in the context of the current economic landscape.
Some may recall that during the lockdowns UK households saved extra £190 billion, but the value of these cash funds for rainy days quickly eroded due to inflation. Inflation is a “silent thief” and its influence means that savers will continue to see their hard-earned savings dwindle, or they may turn to alternatives with a long-term store of value.
It might also be time to look at alternative investment options and asset classes that are insulated from inflationary swings and are particularly resilient to the threat of government debasement during times of political or economic turmoil. Bitcoin, when used for long-term savings, is one such alternative, and one that more people will consider as part of a rounded portfolio designed to combat inflation as well as uncertainty. geopolitics.
Investors lose by saving with traditional banks
Banking giants cheat ordinary investors when they fail to raise interest rates while central banks raise base rates. For example, the Bank of England raised its base rate to 1.75% in August 2022.
The other problem with saving and investing through traditional banks is that government-issued currency carries counterparty risk and, in addition, inherently has zero value. Governmental central banks print according to demand and there is a risk of loss of value due to inflation or loss of value in the event of hyperinflation. Bitcoin, on the other hand, has finite supply and hard-coded monetary policy, giving the commodity anti-inflationary and store-of-value aspects similar to gold.
Bitcoin has traditionally excelled in zero or low rate environments. Since the 1990s, central banks around the world have set low or negative interest rates, and it is likely that we will see a return to this strategy to combat impending recessions.
An important lesson shared by investors in these low interest rate environments is to forget any wishful thinking that interest rates will rise and allocate their money accordingly. For this reason, bitcoin is a logical choice because its decentralized and finite properties are virtually unaffected by inflation and interest rates set by central banks.
Trust in traditional banks is plummeting
Since the 2008 financial crisis, banks have become something of a boogeyman for many investors. EU citizens are less likely to trust traditional banking institutions, and polls by YouGov suggests that only a few Britons still trust traditional banks, with 36% believing that these institutions act in their interests.
Without surprise, one in four Millennials, Gen X and Gen Z investors are turning to cryptocurrency as their asset class of choice. These generations have lost faith in centralized institutions, like banks, due to the continued economic instability they have experienced over their lifetimes. Additionally, bitcoin allows investors to benefit from self-custody, where only they have possession and control of their assets. This is not the case for traditional banks and can leave people feeling a lack of control during times of economic uncertainty – or even worse – during a financial crash.
This growing level of distrust of traditional banking institutions coincides with a loss of faith in national currencies. Countries like Turkey, Lebanon or Argentina are concrete examples of how inflation can get out of control and how people end up losing faith in their local currencies. A global, borderless, nationless digital currency like bitcoin is becoming increasingly attractive as a vehicle for storing wealth.
Bitcoin savings accounts are designed for beginners and risk averse
To research shows that financial insecurity caused by the cost of living means that 46% of Britons have reduced or stopped contributing to some form of savings vehicle. What we have now is that many risk averse people are hesitant to invest or are looking for ways to save passively.
At Relay, we offer a bitcoin savings plan suitable for people who prefer an automated hands-off approach to saving bitcoin.
Investing passively and regularly in bitcoin also allows investors to deploy a strategy called “average cost”. This is where individuals regularly buy bitcoin, while ignoring market conditions and volatility. People with little investment capital can potentially rack up big gains with this long-term strategy.
The current economic situation across the globe has highlighted the weakness of fiat currencies and the need for alternative long-term value storage options like bitcoin. However, before making an investment decision, it is important to do your own research and determine if the choice is right for you.
This is a guest post by Julian Liniger. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.