Bitcoin can "state-proof" South Africans against currency devaluation

Bitcoin adoption in South Africa offers the opportunity to state-proof one's money against currency devaluation that might arise from the government printing too much money or other authoritarian actions, Free Market Foundation CEO David Ansara said Wednesday.

With 80% of the world's population still living under dictatorship, Bitcoin offered the opportunity for cross-border trade, saving and investment, without gate keepers, in an open-ledger, transparent system that can by-pass sanctions and third-party interference. For example, there was much increased Bitcoin use by both dissidents and governments, in the recent political upheavals in Venezuela and Iran, he said.

Iran had seen mass withdrawals of Bitcoin from exchanges to self-custodied personal wallets, as Iranians sought harder assets and protection from a violently repressive state.

Ansara said "state-proofing" as a strategy was relevant in South Africa also to mitigate the harmful effects of state failure, and to protect one's wealth against government policies that might undermine economic freedom.

He said while South Africa's Reserve Bank (SARB) still enjoyed strong independence from the government, it remained, ultimately "a creature of the state." Also, there was increased pressure by governments globally for closer control of central banks.

Here in South Africa, both the EFF and ANC had party resolutions for state control of the SARB, while even the chairman of the US' Federal Reserve, Jerome Powell had recently come under pressure from its government to lower interest rates.

"A fully captured Reserve Bank may be low probability, but it would be highly impactful were it to occur," said Ansara.

He said there were many cases in the world where fiat currency values had been debased or eroded by the actions of their governments, such as for example, in Venezuela, where inflation reached some 340 000% in 2019. Iran's 42% inflation rate in December and 72% food inflation rate last year had been a catalyst to the recent protests, he said.

Also growing globally was increased financial surveillance and capital controls that eroded financial privacy and power, and which, for example, had enabled targeted harassment of political opponents.

Ansara said investors should consider allocating a part of their investment portfolio to Bitcoin as a hedge against rand inflation. "As a monetary technology, Bitcoin's decentralised nature makes it resistant to state interference and therefore a powerful tool of state-proofing."

He said Bitcoin exchange companies were an entry point into Bitcoin investment, but these were subject to third party costs and government oversight, and the buyer did not own their own Bitcoin.

"Ultimately you want to invest in your own hardware wallet to exercise sovereignty over your money," he said. He said there were already a growing number of retailers and services providers in South Africa, particularly in the Western Cape, offering cryptocurrency payment options, resulting in a rise in everyday use of Bitcoin in South Africa.

There were also corporations in the country diversifying their reserve funds with cryptocurrency. He said businesses should explore transactional and balance-sheet use of Bitcoin, and policymakers should maintain a permissive framework that supports monetary freedom.

He responded to questions among online viewers about how power outages and internet shutdowns might impact Bitcoin usage, by saying that these were localised challenges and one did not lose the value of one's cryptocurrency as a result of these shutdowns. Indeed, in Iran, some users were able to exchange Bitcoin using Bluetooth, in spite of the government shutting down the internet.

Another concern raised by one online viewer was that there appeared to be no intrinsic value behind crypto currencies. But Ansara said the only intrinsic value behind fiat currencies was government coercion, and that crypto currency obtained its value from the usage and trust put into it by its users all over the world.

"Bitcoin should be one component in your arsenal if you want to protect the value of your wealth," he said.

Visit:www.businessreport.co.za