Categories: Finance

How cryptoassets will help with the diversification of foreign exchange savings

How cryptoassets will help with the diversification of foreign exchange savings

The sanctions policy of foreign countries and the position of Russian regulators lead to the devaluation of deposits. Among private investors, the opinion is becoming popular that cryptocurrencies can become an alternative option for maintaining profitability.

This week, two Russian commercial banks at once, Tinkoff and Raiffeisenbank notified of their clients on the introduction of a fee for servicing accounts in foreign currency. The commission will apply to owners of current, savings and card accounts opened in euros, US dollars, pounds sterling, Swiss francs and Japanese yens.

Despite the fact that financial institutions will introduce a fee for servicing foreign currency accounts, depending on the participation of clients in privileged programs of banks, payroll projects, lending, and so on, the main criterion will be the assessment of the monthly balance of funds.

The fee will be from 0.2% to 1% of the account balance per month. Thus, the profitability of foreign currency deposits will be significantly reduced.

What’s happening

Against the backdrop of sanctions, isolation of the foreign exchange market and a decrease in the number of corporate accounts of non-residents, the presence of foreign currency liabilities and assets of Russian commercial banks makes it impossible to hedge foreign exchange positions, consider
at the Bank of Russia. Therefore, the only correct way out in this situation, from the position of the regulator, is to reduce the assets in the currency of the so-called unfriendly countries on the accounts.

Until recently, Russian banks were able to partially cover their costs through foreign corporate clients, as well as through higher banking fees. However, now, in the absence of effective instruments for the placement of foreign currency liquidity, the larger the amount of client deposits in banks, the more expensive their servicing becomes.

Head of the State Duma Committee on the Financial Market Anatoly Aksakov informedthat the Central Bank is considering introducing negative rates on deposits:

“In the near future we will legislate the possibility of introducing negative rates on foreign currency deposits for legal entities. I think it is necessary to stimulate the use of the ruble by Russian business and continue the course towards de-dollarization.”

According to the deputy, the introduction of negative rates on foreign currency deposits for individuals is not yet considered, but most likely, these rates “will be near zero.”

The share of foreign currency deposits of legal entities, as follows from the latest available statistics of the Central Bank, in January 2022 was 31.2%, of individuals – 20.6%.

Stablecoins as a way to store currency

In the short term, the profitability of foreign currency deposits will fall for all banks, the total number of deposits will decrease, and maintenance costs will increase.

Is it possible in such circumstances to save your dollars and similar currencies in stablecoins and other cryptoassets?

In theory, the purchase of stablecoins can be considered as an equivalent, close in content to a currency deposit. For example, USDC or USDT.

Stablecoins are close to fiat currency and, unlike most crypto assets, are less subject to regulatory risks and sharp changes in the market price. However, the reserves of cash, securities and deposits that ensure the stability of these crypto-assets can suddenly dissolve into oblivion. A sad example of this is the collapse of the Terra project and its stablecoin Terra USD (UST). Despite the fact that other projects remain afloat, caution does not hurt.

Will cryptoassets help in diversifying savings

Guided by the rules of prudent investment, relying only on cryptocurrencies as a means of investment is not worth it. Digital currencies are an extremely volatile asset. Even despite the fact that in the long run, from five years or more, they can promise a fairly high income.

The most optimal approach is to create a weighted investment portfolio, where no more than 15–20% is allocated to crypto assets.

When forming a cryptocurrency investment portfolio, one of the strategies may be investing in the top ten cryptocurrencies by market capitalization. More preference can be given to bitcoin (BTC), ether (ETH) and BNB (the issuer is the largest crypto exchange Binance). The acquisition of tokens of new projects should be approached with extreme caution and considered only as a short-term speculative investment.

In addition to the likely income from the growth of the cryptocurrency market price and the receipt of interest income similar to the interest on a bank deposit, additional benefits can be achieved through crypto lending or staking.

Crypto lending platforms, attracting cryptocurrency assets to their balance, can promise their owners a return of up to 14-20% per annum. As with traditional finance, there are scammers to watch out for. It is worth being careful and analyzing the offers of the platform, especially when you are offered a guaranteed return (remember the Terra project).

It is also necessary to be aware that, unlike banking, the activities of cryptocurrency companies are not protected by the state deposit insurance system. This can become a problem in the event of the bankruptcy of a crypto company: your funds may be irretrievably lost.

Will the transition to cryptoassets help in diversifying foreign exchange savings? Rather yes. Like ruble. With proper security measures, crypto-currency instruments provide their owners with greater financial freedom with less administrative burden than traditional fiat deposits. Crypto assets can act as a tool for saving savings and a way to receive interest income.

In June, the CEO of Luxembourg-based crypto exchange Bitstamp, Bobby Zagotta, announced that his company was launching a product to earn money on interest rates in the United States.

Source: Bits