Banks fail savers. Bitcoin is the alternative – Bitcoin Magazine
This is an opinion editorial by Julian Liniger, co-founder and CEO of Relai, a bitcoin-only investment app.
Traditional banks are short-changing customers by failing to reflect inflationary changes in the savings account rates they offer. On average, these accounts are 0.3% in the US – a nominal interest rate in the context of today’s economic landscape.
Some may remember that during lockdowns, UK households saved an extra £190bn, but the value of these rainy day cash has eroded rapidly due to inflation. Inflation is a “silent thief” and its influence means savers will continue to see their hard-earned savings drain in value, or they may look to alternatives with a long-term store of value.
It may also be time to look at alternative investment options and asset classes that are divorced from inflationary swings and are particularly resilient to the threat of sovereign default in times of political or economic turbulence. Bitcoin, when used for long-term savings, is one such option, and one that many will consider as part of a rounded portfolio designed to beat inflation as well as geopolitical uncertainty.
Investors lose out on saving with traditional banks
Banking giants deceive everyday investors when they fail to raise interest rates despite central banks raising 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 via traditional banks is that state-issued currency comes with counterparty risk and also has zero value. State central banks print based on demand, and there is a risk of loss of value due to inflation or becoming worthless when hyperinflation occurs. Bitcoin, on the other hand, has a limited supply and a 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 interest 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 fight looming recessions.
A key lesson that investors share in these low interest rate environments is to forget any wishful thinking that interest rates will rise and to allocate their money accordingly. For this reason, bitcoin is a logical choice as its decentralized and limited properties are virtually unaffected by inflation and interest rates set by central banks.
Trust in traditional banking is declining
Since the financial crisis of 2008, banks have become a bit of a boogeyman for many investors. Individuals in the EU are less likely to trust traditional banking institutions, and YouGov polls suggest that only some Britons still trust traditional banks, with 36% believing that these institutions operate in their interests.
Not surprisingly, one in four millennials, Generation X and Generation Z investors are turning to cryptocurrency as an asset class. These generations have reduced faith in centralized institutions, such as banks, due to continuous economic instability experienced during their lifetime. Also, bitcoin allows investors to benefit from self-custody, where only they have possession and control over their assets. This is not the case for traditional banks and can make people feel out of control during economic uncertainty – or worse – during a financial crash.
This increasing level of distrust in traditional banking institutions coincides with declining trust in national currencies. Countries like Turkey, Lebanon or Argentina are real-world examples of how inflation can get out of control and how people eventually lose confidence in their local currencies. A global, borderless, nationless digital currency, like bitcoin, becomes more attractive as a vehicle for storing wealth.
Bitcoin savings accounts are designed for risk takers and beginners
Research shows that financial uncertainty caused by the cost of living means that 46% of Britons have reduced or stopped paying into some form of savings car. What we have now are many risk-averse individuals shying away from investing or looking for ways to save passively.
At Relai, we offer a bitcoin savings plan tailored to individuals who prefer an automated hands-off approach to bitcoin savings.
Passive and regular investing in bitcoin also allows investors to implement a strategy called “cost averaging”. This is where individuals regularly buy bitcoin, while ignoring market conditions and volatility. Individuals with little investment capital can potentially achieve significant gains through this strategy in the long term.
The current economic situation worldwide has highlighted the weakness of fiat currencies and the need for alternative long-term store-of-value options such as bitcoin. However, before making an investment decision, it is important to do your own research and consider whether the choice is right for you.
This is a guest post by Julian Liniger. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
