Planning for the Unplanned. Better Products for Such Situations.
It is said it matters more in which currency is your spending than your income. To truly understand that you'd have to live in a country with hyperinflation, while prices are more or less pegged to a strong currency. Venezuelans probably understand that very well. Argentinians most likely are in the same situation. People from Turkey felt the effects of hyperinflation on their national currency too. Nigerians saw their local currency fall hard as well.
Whether they understood the exact economical mechanisms that created what they live(d) through it doesn't really matter. They can see the effects and understand that if they earn their income in their national currency, it will soon be worth less because prices rise even from one day to the next, in some extreme cases from one hour to the next.
I lived through such a period as a child, but I understood it much later and made the connection with my memories.
But that saying doesn't refer necessarily to rising prices as a wider phenomenon.
Let's say you earn your income in Yen and spend it in USD. And let's say the Yen devalues compared to USD from the time you receive your income to the time you spend it (can be a short term thing). That will effectively reduce the spending power of your income because you would be able to buy fewer products due to the unfavorable exchange rate.
This is one reason why stablecoins are absolutely necessary in the crypto verse (at this time - we will see what the future brings). Generally, in the real economy are accepted currencies widely used as units of account and mediums of exchange, regardless if they are themselves volatile one compared to another.
So, if you'd have 0.1 bitcoins in the bear market, would you use it to buy something in the real world? Probably not, unless it's the last option. How about in the bull market? Some would say yes. But it really depend. Is the price set using fiat currency as a unit of account or Bitcoin as a unit of account? In the former case, maybe it's an option. In the latter, where the price in Bitcoin doesn't vary significantly between bear and bull market, would you still do it? Others will say no, regardless of circumstances, thinking of Bitcoin as a store of value, and not as a currency.
I had significant fiat expenses over the last few months (it will be over 10k Euro when it's all done, for now). I refused to use any crypto holdings to fund my expenses, knowing it wasn't the right time.
But the recent experience (which isn't over yet), made me think more about collateralization in the crypto verse (thus two recent posts on the theme), holding significant savings of stablecoins even through the bull market for rather unplanned situations, and how crypto could use better options overall.
For example, for the collateralized lending products, loans generally make sense taken during the bear market and repaid after gains of the bull market roll in.
But what if there were different types of products, and some of them would make sense the other way around. If it's an unplanned expense, you can't really wait for the bear market because that would be a better time to take the loan. What if there was a product or a combination of products where it was better to take to loan during the bull market and repay it during the bear market, all while having the same risk factor as the opposite?
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It isn't exactly worth it to currently spend crypto at the moment. I saved some amount of money from the last bull market, but then I lost my mother and incurred unexpected expenses and lost the remaining money, basically it's been hard.
Having money in the Nigerian Naira is a waste, inflation eats it away.
Arguably, Nigeria has the worst currency in the would. The prices of services increase per day and salaries are constant
Yep, that was exactly my point. I used instead my fiat savings for unplanned situations, but you can't keep to many of those either because of inflation. Collateralized loans is an option, but it isn't for everyone and it depends a lot of conditions.
It won’t even make sense to spend the money in your crypto account right now. The market is bleeding but unfortunately, I’m on a power down because I just have to survive
I need money for something very important…
Well, these are situations that hopefully could be avoided in the future with proper education and products.
Comparing Yen to USDT is just like comparing Naira to USDT. We earn in Naira here and the rate is far lower than that of dollar. That’s why it is always better to earn in dollars and spend in Naira
Yep, that's the best idea when there is such an option, and luckily, with the internet, digital money and now crypto, things are much easier to do this than in the past.
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It's really tough when the income doesn't stretch far due to inflation. It's good to plan for unexpected costs with stable savings, whether in fiat or crypto, to avoid tough choices during market dips.
Yeah, at some point I started to wonder if having my 52-week HBD challenge during this year was the best choice. But after this short period with high fiat unplanned expenses, I realized that no attempt to increase profit helps if when you need funds for unplanned expenses the best decision is "let's wait a little longer". Maybe you need to spend some funds right then, in which case, in crypto at least, the easiest option is stablecoins.
The easiest option certainly has to be the stablcoins... For me it's either HBD or USDT
Yep, I will continue to build up my stables for sure.
And will do same big brother 😎💯💯💯🥰
I apply the old advice of keeping some money liquid in case of emergencies. With crypto, I consider them as investments, with stablecoins as the liquid one. I haven't really used them outside of buying crypto, but in countries with high inflation, they will definitely be important.
Yes, I had some liquid fiat too. But when expenses grow on the short term and they are unplanned, you can hit the bottom quite quickly because you can't keep too much liquid, otherwise it gets eaten away by inflation.
Stablecoins are important and I think locking in some gains is never a bad option. After all, like you said, you need an emergency fund and it does help to have it when you need it. I am a bit adverse to loans though.
I have been like that my entire life. I've wondered if I should change something, at a small scale. But the recent happening of the founder of Curve Finance have made my protection mechanisms kick in again.