Bitcoin broke $30 000 to the downside this week, prompting speculation that the bear market is not yet done.
Bitcoin is now down 54% from its all-time high of $65 000, and Ethereum is off 60% from its $4 100 May peak.
Cryptos are now dangerously close to surrendering all their gains achieved earlier in 2021.
The question many are asking now is when is it safe to re-enter the market, with several analysts suggesting the mid to low $20 000s.
“This is a question that is always asked whenever there is a bear market in bitcoin, but it is relatively safe to assume the downside from here is limited, and we should start to see price strength, perhaps towards the end of the year,” says Jon Ovadia, CEO of crypto broker Ovex.
All new technologies exhibit extreme volatility as this chart from Stansberry Research demonstrates. Bitcoin dropped 30% to 40% on six separate occasions between May 2016 and November 2017, followed by a crash of 84% in 2018.
The current 54% slump in bitcoin’s price does not alter the fact that bitcoin has “entered a fundamental boom” according to Stansberry Research, and the volatility being exhibited along the way is similar to what occurred in technology stocks in the early 2000s, and in renewable energy stocks in the later 2000s.
“One fundamental change that has happened in cryptos since the speculative boom of 2017 is that there is a real business case, and real earnings, behind cryptocurrencies like Ethereum, Cardano, Polkadot and others. You are now able to exit the traditional banking system, and exit the rand, and earn interest rates as high as 20% a year, with no lock-up periods required,” says Ovadia.
“All this is made possible through decentralised finance [DeFi], using technologies that are built on top of blockchain. The fact that you can switch out of rands into US dollar-backed stablecoins such as USD Coin [USDC] and True USD [TUSD] without having to ask permission from the Reserve Bank is something that is entirely new for South Africans. You can effectively hold as many US dollars as you want, and you can earn interest of 9% to 10% a year on these stablecoins through an Ovex interest account. And for amounts of R500 000 or more, the interest rates can go as high as 20%.”
Ovex interest account returns
Ovadia says South Africans who are hesitant about participating in cryptos are understandably concerned about the kind of volatility seen in the price of bitcoin and other cryptos in recent months, but says that should not deter them from taking a far safer route into the crypto space through interest accounts.
Interest rates like these are disrupting the traditional finance space, with more than $50 billion locked up in DeFi applications that allow users to lend, borrow and earn interest by ‘staking’ cryptocurrencies (putting them to work in return for rewards) such as Ethereum and bitcoin. The kind of interest rates being offered in the DeFi space are eye-watering in comparison with those offered by banks.
This is one of the big trends to watch out for in the coming years, as banks get steadily squeezed in what is turning out to be a highly competitive market, says Ovadia.
There are several other advantages to investing in an Ovex interest account:
- Interest is paid out daily;
- The deposit lock-up periods are 30 days (banks, in comparison, often require lock-up periods of five years to earn interest rates that top out at 7-8%);
- Interest is paid out in US dollar equivalent stablecoins rather than rands (if investing stablecoins). Holders of bitcoin are paid out in additional bitcoin, allowing them to increase their bitcoin holdings over time without having to invest any new cash. Similarly, holders of ether (the native coin of the Ethereum network) are paid out in additional ether rather than rands;
- These assets are all rand-hedged;
- There are risks associated with these investments, usually around the stability and financial soundness of the exchange and its ‘staking’ partners; this is why it is important to select an exchange with a strong balance sheet and large (and reputable) financial backers; and
- Wealth managers may be precluded from a direct investment in bitcoin or ether, but their mandates usually allow an exposure to crypto interest accounts of the kind offered by Ovex.
To find out more about Ovex’s interest accounts, click here.
Brought to you by Ovex.
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