One thing is for certain: inflation is certain to spike as South Africa starts the clean-up process from a week of deadly riots and looting.
The SA Property Owners Association (Sapoa) estimates the damage from the riots at R20 billion, though this figure could rise as insurers spend the next few weeks gathering claims from affected businesses.
“These riots have changed SA’s risk profile, and there is no doubt that higher inflation is on its way,” says Ovex CEO Jon Ovadia. “The rand weakened sharply against the US dollar and euro in the last week as a result of the riots and looting that were seen around the country. That means we are going to be paying more for imports, including fuel.”
Higher fuel prices impact virtually every sector of the economy.
What this means for portfolios
Higher inflation poses several challenges for businesses and fund managers. Businesses unable to pass on higher costs to customers will have to take the hit to the bottom line, while fund managers under pressure to maintain or improve returns could find themselves taking riskier bets than would ordinarily be the case.
Why this could force fund managers to embrace lower risk crypto options
Ovadia believes the inflationary threat could force fund managers to start considering lower risk crypto investment options, such as interest accounts, where cryptos are put to work on the blockchain, a process known as ‘staking’.
Returns of up to 20% are available in decentralised finance or DeFi, something that is virtually unheard of in traditional banking.
Annual interest rates offered on cash deposits by the banks range from 2.25% to 10.01%, but the higher rates are only available to those prepared to lock up funds for 60 months.
Ovex is able to offer annual returns starting at 10% on a stablecoin called USD Tether, with a 30-day withdrawal notice period.
Ovex interest account returns
But for those investing higher amounts of R500 000 or more, annual interest rates of 20% are offered, subject to negotiation, to find out more click here.
Interest is paid out on a daily basis. For many crypto asset owners, this is an opportunity to increase their crypto holdings without having to invest any new cash. For example, an Ovex interest account with 10 bitcoin (BTC) will earn up to 0.4 BTC in interest over a one-year period.
While many fund managers are precluded from investing in cryptos, wealth managers are less constrained. “We are starting to see very strong interest in cryptos from wealth and family office managers, and that interest is being driven by their clients,” says Ovadia.
“They are compelling their fund managers to offer some exposure to cryptos, because of the high returns that they have seen.
“The crypto space is rapidly evolving, and DeFi has opened up some fascinating opportunities to earn excellent returns at relatively low risk.”
Ovadia explains that the high interest rates available through interest accounts such as offered by Ovex are the result of supply and demand.
“The DeFi market is growing rapidly, but it is a tiny fraction of the traditional financial sector. Many people are willing to pay high rates for borrowings, and a lot of them are people who own cryptos that they do not wish to sell, believing they will continue to rise in value over time.”
What about the risks?
As we have seen in the last few months, cryptocurrencies such as bitcoin are capable of dropping 50% or more in weeks (just as they are capable of climbing by similar amounts).
Traders are drawn to cryptos because of this volatility, but there are other risks, quite apart from wild price swings: there are frequently lock-up periods during which you cannot regain access to your crypto; there are counter-party risks, which means you could lose your crypto altogether should the platform staking your crypto fail – which is why it is important to stick with well-capitalised and reputable providers.
“There are risks involved, but we’ve taken great care to make sure these are at a minimum. The DeFi providers we partner with are carefully selected and are financially robust,” says Ovadia. “The result is that our larger clients are able to earn 20% interest a year at relatively low risk.”
To find out more about Ovex’s interest accounts, click here.
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