During the past two years, affected by the global pandemic, countries have adopted comparatively loose monetary policies. Due to massive quantitative easing programs, currencies around the world are threatened by rising inflationary pressures. A great number of market players hope that governments can gradually tighten the monetary policies and terminate the purchase of debts ahead of schedule. Despite this, at a recent meeting, the Federal Reserve suggested that the current monetary policies will remain loose. More specifically, it will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency MBS (mortgage-backed securities) by at least $40 billion per month. Although there were signs of reduced debt purchases at the meeting, the Fed is not expected to stop buying assets until mid-2022, which means that the Fed will continue to dump more than $400 billion into the financial markets.
As a result of these massive quantitative easing programs, the dollar faces rising inflationary pressures. Moreover, the FOMC has significantly raised its inflation expectations for 2021. The PCE and core PCE reached 4.2 % and 3.7%, up by 0.8 and 0.7 percentage points, respectively, compared with statistics in June. Until 2024, the Fed expects to pursue the long-term policy target of above 2% inflation. The United States is not the only country suffering from inflation. The Bank of England also said in a report that if some stimulus measures are not terminated, inflation will exceed its annual target of 2%, and the inflation rate in the UK may still be above 4% by the second quarter of 2022.
At a time like this, threatened by high inflation rates, idle assets will depreciate if not properly managed. As such, many people have started finding ways to make better use of their idle assets and achieve asset appreciation. Common channels of investment include futures, stocks, cryptocurrencies, etc., yet they often cost investors plenty of time to learn and keep track of the market for prompt operations. As a result, investors who do not have the time tend to miss the opportunity and suffer from losses, which is why many of them prefer financial products with more steady yields.
Considering the opportunity cost and risks, many investors eventually chose the safest investment approach: fixed bank deposit, which is secure and risk-free. Compared with other available channels of investment, fixed bank deposits are convenient and free from all worries. However, it yields low APYs. According to the current statistics from World Bank, the annual interest rates for one-year deposits in developing countries such as Turkey, Indonesia, and Ukraine have reached 5.5% or higher, while the annual interest rates in countries such as China, Japan, New Zealand, South Korea, Singapore, and Canada are below 2%.
Source: The World Bank
Some countries promise annual interest rates of over 8%. For example, according to data from Trading Economics, the annual interest rate for deposits in Venezuela has reached 36%. However, since the country suffers from soaring inflation, the annual interest rate of 36% means very little in the face of the rapidly depreciating currency value.
Right now, the annual interest rate for deposits in most of the fast-growing economies stays below 2%. For example, the one-year deposit interest rate in China, Australia, and Singapore is 1.5%, 1.6%, and 0.2%, respectively. Yet, in most countries, the annual inflation target is approximately 2%. In recent years, the actual level of inflation in countries has far exceeded this target. In other words, inflation in many countries is higher than the annual interest rate for one-year deposits.
Like fixed deposits in traditional finance, the crypto sector also offers investment channels with steady returns. As PoS and DPoS become more popularized, staking has become the preferred choice of many long-term investors who are optimistic about the prospect of the crypto sector. To obtain coin-margined returns from staking, users only need to stake their tokens on the mainnet.
According to the Staking page of DOT, the average return stands at about 13.9%. On ViaWallet, the expected APY of staking KAVA is 20.17%, which is higher than that of traditional bank deposits in most countries.
Through staking, investors can receive daily stake rewards while holding the tokens. Moreover, investors can also obtain higher returns through reinvestment and staking of such rewards. For investors who believe in the prospect of their holdings, staking for returns is a steady approach to preserve/increase the value of assets.
Confronted with quantitative easing on a global scale, everyone must consider how to preserve the value of our assets. Both bank deposits and staking are ways to guard against inflation. In comparison, crypto staking promises higher APYs. However, this is only the case for coin-margined investments, and if the token is fiat-margined, the rise/fall of the specific legal tender must also be considered. Therefore, staking is clearly a great option for investors planning to hold cryptocurrencies over the long run. On the other hand, investors who prefer short-term fiat-margined yields need to account for multiple factors before making the decision.