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CIARAN RYAN: Can cryptocurrencies be used to protect your wealth in a weakening economy? Cryptos are generally perceived as high risk – and with good reason. We’ve seen the kind of volatility associated with crypto assets like Bitcoin and Ethereum, both of which dropped more than 70% between November 2021 and last year, and that’s before rebounding sharply since the start of 2023.

But can cryptos be used by ordinary investors to hedge against risks like inflation and currency depreciation? Well, it turns out they can.

Joining us to discuss this is Brett Hope Robertson, head of investments at Revix. Hi, Brett. Good to have you back on. Can we start off by talking about the major risk factors for South Africans trying to accumulate wealth? I mentioned inflation and rand depreciation. Am I missing something?

BRETT HOPE ROBERTSON: Thanks for having me on. I think this is really a prevalent topic for all South Africans today. There are key issues in South Africa, especially, [those] that affect you on a macro level and how to invest and protect yourself in an environment like this is something everyone’s kind of seeking. And I think as we’ve all heard, the first key to any problem is realising there is one.

South Africa is by no means perfect, and there are major risks. You’ve mentioned two of them. I think inflation is a big one, and interest rates are another. I think load shedding is a huge one, and obviously now greylisting has just popped up. These are four kinds of pillars, and they do feed into rand devaluation.

If we start off with inflation, last year [there was] decade-high inflation globally. South Africa was no different or no exception to this rule. I think we printed at about 7.2%, which is a 1.3% rise from the start of the year. And there’s a lot of people now saying, ‘Oh, we think inflation’s going to cool off’. Our last print was 6.9%. We pulled back in January.

But there’s one thing we know about inflation; it remains sticky for a really long time at the best of times. We’ve seen that in the US, where they’re looking at pushing up interest rates for longer. How inflation affects people’s investments is that your everyday expenses obviously are more expensive … But, more importantly, as you said, it weakens the South African rand. So South Africans find themselves saving and investing in a currency that’s losing value faster than it used to, and it becomes extremely tough to grow your international wealth in a currency that’s literally depreciating daily, and faster than it used to. We normally had about a 5% depreciation. That’s starting to kick up to about 7%/8% area now, and it’s really disheartening to try to grow your wealth and have your hard-earned money disappear daily.

The next area we see is interest rates. Again, interest rates are soaring around the world to kind of combat inflation. South Africa did their eighth consecutive interest-rate hike, up to 7.25%. Again, analysts are saying, well, we project interest rates will be around for longer and higher than the market expects out of the US just this week. They’ve completely rerated the market with regard to how high interest rates will go, and how long they’ll be there. What interest rates do when they’re high is they make funding for companies more expensive, and the companies’ ability to borrow money and therefore grow their business becomes really expensive. So this kind of translates into reduced company profits, one, and two, a lot of analysts discount cash flows on interest rates. So the higher the interest rates, the less that future cashflow means for a business today.

So current stock prices should be hit quite hard by these interest-rate hikes [for] South African companies.

So it’s not just rand devaluation, it’s how you grow your wealth with the rand devaluing and a falling stock market.

The other two [factors] we have are load shedding and greylisting. Load shedding, as everyone knows, completely disrupts economic activity, company growth profits, and even tax collection if there are no profits. It’s hard to grow a business with no power and, if you get it, it’s still really expensive to run. So your margins get absolutely shot. This always has really negative effects on South African companies, the stock market and the South African rand. No one really wants to come and invest in a country that has no power. So the demand side of your rand is diminishing. So investors in South Africa, your everyday people, sit again with this devaluing currency and this falling stock market.

And greylisting popped up. It’s done now, [a fait accompli]. We’ve finally been put on the [Financial Action Task Force’s] grey list. What this means is linkages to the global financial system just get a little tougher. Getting foreign direct investment becomes a little tougher. A country that wants to invest in South Africa has to go through increased due diligence to get in here, which means they have to spend more money, so it’s adding a cost to foreign investment. So you might see a lot of foreign investment move away from South Africa due to this, [and such] investment is critical to rand strength. It’s a huge demand side for the rand. Again, as you said, rand devaluation just keeps on popping up in all of these themes.

So all these factors kind of point to a future of rand devaluation, lower stock prices and sticky inflation, and I think crypto could possibly be the provider of help for that.

CIARAN RYAN: Let’s pivot this to cryptocurrencies. It might seem to a lot of people rather strange that we bring in the subject of cryptocurrencies when we are talking about trying to grow your wealth in a weakening economy. But give us some idea of how cryptos could be used to protect against these risks that you’ve just been talking about.

BRETT HOPE ROBERTSON: Sure. These risk factors I just mentioned – that basically means there could be a year of further rand devaluation, further sticky inflation, and negative South African stock prices.

So investors ultimately, in South Africa number one, need to get into an asset class that is a rand hedge. That’s number one. Number two, they need to possibly look for an asset class that is not as inflationary and, three, has some form of growth to it.

Crypto kind of ticks all these boxes.

Crypto is a dollar-denominated asset, meaning it’s priced in dollars and therefore is a rand-hedge investment, and provides this protection against this everyday rand devaluation.

Secondly, there are some cryptocurrencies that have extremely low inflation rates, if not [being] deflationary. Ciaran, you probably know Bitcoin and Ethereum come to mind here as two of the front runners in this space.

Thirdly, you’re looking for growth. So it’s kind of strange, after the year we’ve had, to say ‘look at crypto for growth’. But Bitcoin and, for example even an index-tracker like our Revix Top 10 Bundle, both have significantly outperformed the South African stock market over the last three years. That’s just a three-year sample. If you go back five, 10 years, it becomes a bit ridiculous. The Revix Top 10 Bundle did over 340% in three years. Bitcoin has done over 290%, and your JSE Top 40 did about 44%. So there is this long-term view that you look at and you [think], well, this asset class is a rand hedge, it has low inflation, a lot of these assets, and it has huge benefits on a return basis to add to a balanced portfolio.

CIARAN RYAN: Okay, crypto did have a tough year last year. You mentioned that. But people will be asking: ‘Can it realistically be used to help grow my wealth?’ How do you answer that?

BRETT HOPE ROBERTSON: Yes, it’s a question we get a lot. Look, last year was a tough year. It was basically a year when anything that could have gone wrong in crypto, kind of did. Despite all the bad actors and the bad news of 2022, crypto is still here. There are multiple blockchains still operational, billions of dollars still being processed. The technology itself is still running and winning. And on this investment-related note when everyone asks, ‘Well, can it really grow wealth? Look at it over last year,’ if you look at return profiles on a long-term view, there still isn’t an asset class that’s performed like crypto.

Bitcoin has returned on average over 160% a year, year on year, since its inception. That’s mental. Secondly, in Bitcoin’s history there is yet to be a four-year period of negative returns. There’s never been a rolling four-year period in … Bitcoin’s history of negative returns. In fact, the lowest four-year-period return it had is 144% up. That’s mental.

So that’s just showing you that, yes, there are going to be massive cycles in crypto; there’s going to be volatility in it – but on four-year periods it’s actually quite a stable-ish investment. It hasn’t had a negative-return in a four-year period.

In between that, you’re going to get this volatility, and that’s because it’s still a very young asset class fighting for market dominance. There’s regulation that’s coming in around the world; there are actors trying to stop it; there are actors trying to help it grow – and it’s just fighting in this mode right now.

But if you look on a long-term view, as I said, it’s one of the most outperforming asset classes we’ve ever seen. On top of that, it’s uncorrelated. A lot of these different areas of crypto are uncorrelated to a number of different asset classes, and we’ve kind of seen that simply adding a 5% to 10% allocation to a balanced portfolio drastically increases the risk-reward or your Sharpe Ratio of that portfolio.

So from that perspective alone it’s just a diversifier, it’s a must-have in a portfolio. A smidgen or a 1% to 10% allocation would be enough.

CIARAN RYAN: Okay, so the question is then where do people get access to crypto and, more importantly, diversified exposure? Revix does have a few products there, so tell us about that.

BRETT HOPE ROBERTSON: In these in crazy times, we always want diversification. This is why we say in crypto, especially a market that’s changing constantly, ‘Why search for that needle in the haystack, that one investment that could make you, but that one investment could also break you?’

So why search for that needle, that one investment, when you can just buy the whole haystack? That’s where Revix came up with the ‘Bundle’ idea.

It’s such a changing environment. You might as well buy the haystack and have fun, instead of spending your time searching for that one winner.

Revix has our signature crypto bundles. These are like your indexes or ETFs (exchange-traded funds) as part of the crypto space, and they are basically fit for any investor who wants just to buy the entire crypto market outright, or chooses to buy a bundle that’s of a sub-sector of crypto, or an area that they prefer and find more appealing. But also through one-click investment, it’s instantly diversified across the biggest actors in those spaces.

So we have our Top 10 Bundle, which is our index tracker. We have our Smart Contract Bundle, our Decentralised Finance Bundle or Payments Bundle.

We also have our Inflation Shield, which is two inflation fighters put together, and we are bringing out two new bundles this year. So I’ll ask everyone [around] about the end of April, [that] people should watch the space for that.

CIARAN RYAN: Just very quickly, before we end off, the Inflation Shield – how has that performed since you started that, I think, a year or year-and-a-half ago?

BRETT HOPE ROBERTSON: The Inflation Shield, firstly, is a bundle comprising what we think is the inflation protector of tomorrow, and the inflation protector of yesterday.

It’s your Bitcoin and your gold, and it’s optimised in a certain weighting that allows for minimal drawdown risk and gets you this maximum kind of kicker. So it’s basically like a supercharged gold. It’s 75% gold and it’s 25% Bitcoin.

Just off the top of my head, we started that about two years ago, a-year-and-a half ago. Since we’ve run it for a while on the back end, over the last three years it’s up 18% in three years versus gold only up 3%. So it’s got that Bitcoin kicker to it, that Bitcoin element to it, in that when [the] crypto market starts to turn you get that crypto upkick into your gold investment strategy. So it’s like your little supercharged gold.

CIARAN RYAN: Okay, we’re going to leave it there. Thanks very much. Brett Hope Robertson from Revix.

Brought to you by Revix.

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