Hedging Inflation with Cryptocurrency (Binance P2P Trading Guide)
Global Inflation is on the Rise
As of mid-2022, inflationary pressure exerted on the global economy is no longer a secret. The UN department of economic and social affairs projects global inflation to reach as high as 6.7% in 2022, drastically higher than the average inflation of 2.9% recorded between 2010 and 2020 (World Economic Situation and Prospects as of Mid-2022 Report, May 2022).
In Asia, especially in the Indian sub-continent where I am based, inflation is heavily influenced by sharp rises in energy and commodity prices. Food prices in India have risen from 0.68% in September 2021 to 8.38% as of April 2022 (MOSPI, May 2022), while Sri Lanka is experiencing inflation rates as high as 132% (News 1st Interview of Steve Hanke, May 2022).
At a high level, inflation is the general increase in the prices of goods and services within an economy. Typically, high rates of inflation are accompanied by a debasement of the economy’s currency. In Sri Lanka, the rapidly rising inflation has debased the Sri Lankan Rupee by 33% against the US Dollar in 2022 alone, as of April 2022 (Central Bank of Sri Lanka, April 2022).
Inflationary Hedges
Traditionally, gold has been considered a hedge against inflation given the precious metal’s ability to retain and appreciate in value during high-inflationary periods.
Unlike fiat currency (traditional money), the supply of gold stays consistent despite economic conditions; while central banks have unlimited authority to print fiat money, as exemplified by 20% of all USD in circulation being printed in 2020 (Forbes, 2020).
This hard cap on the supply of gold traditionally appreciates its value against currencies during high inflationary periods when central banks print money to bridge fiscal deficits.
Naturally, the expectation is for gold to perform its task as an inflationary hedge during this period of inflation by retaining investment value and appreciating against the potentially depreciating value of fiat currencies.
In 2020, gold appreciated as much as 25%, following the economic slowdown due to the pandemic, and emerged as the best performing asset class in January of 2022 (Business Standard, February 2022).
Cryptocurrency: The Better Gold?
While gold has retained its position as a favored asset class with an estimated market cap of $11.7 trillion, Cryptocurrencies have emerged as gold alternatives in recent years.
While still early in its journey of adoption, Bitcoin, often touted as “better gold” and “digital gold” stands at a market capitalization of 560 billion at the time of writing.
In 2021, Bitcoin greatly outperformed gold in terms of returns on investment over a period of 10-years. In the period between 2011 and 2021, gold returned 0.25% and the S&P 500 returned 277% while Bitcoin returned 437,171% on investments during the same period (Nasdaq, November 2021).
However, gold has regained its position at the head of the table as the best inflationary hedge in 2022, outperforming Bitcoin amid the struggles of the cryptocurrency market in recent months.
Setting-Up to Trade Crypto on Binance P2P
Whether or not Bitcoin is better gold, the cryptocurrency has earned its place as a contemporary essential in any diversified portfolio of investments looking to retain value in an inflationary environment.
Binance is the world’s largest cryptocurrency exchange by trading volume and is home to arguably the most robust peer-to-peer trading platform for cryptocurrencies.
P2P platforms are especially important to investors in countries like Sri Lanka that lack regulatory clarity with regard to cryptocurrencies and also lack payment methods that can be used for the purchase of crypto from exchanges.
In Sri Lanka for example, the only way to make investments in cryptocurrency is through the Binance P2P marketplace.
Prior to using the Binance P2P marketplace, investors are required to sign-up for and verify their Binance account.
Use this referral link to sign-up for a Binance account and enjoy a 20% discount on trading fees.
Once you’ve signed up, use this guide to complete basic and advanced verifications of your Binance account.
Binance P2P Marketplace: Step by Step Guide
Once the Binance account has been set-up and verified, you are ready to start trading on the P2P marketplace. I prefer using the Binance mobile app, but the same trades can be done using Binance on the web browser.
The P2P marketplace is a secondary market for buying and selling cryptocurrencies. Unlike purchasing cryptocurrencies from Binance using a credit/debit card, the P2P marketplace allows you to purchase crypto from other sellers in your country using bank transfers (and other payment methods).
In a country like Sri Lanka, Binance P2P is the only option to purchase crypto since all bank cards have blocked payments made out to foreign service providers such as Binance (due to ongoing forex crisis).
Step 1
Open the Binance app on your mobile and click on the “Trade” tab on the ribbon at the bottom of the screen.
Step 2
In the P2P Trade screen, the following information will be available.
Fiat Currency (Top Right of Screen) — This is the currency used in your country of residence that your bank account is denominated with. You will essentially use this currency to purchase crypto and will receive this currency when selling crypto on the Binance P2P marketplace. Tap on the currency and select your currency to proceed with buying from local sellers.
“Buy” option (Top Left of Screen) — Ensure that the “Buy” option is toggled on as opposed to the “Sell” option.
“USDT” selection (Top Left of Screen) — Ensure that USDT is selected from the options including BTC, BUSD, BNB, ETH, DAI and ADA. USDT is a stable coin, which means that the value of USDT is pegged 1:1 against the US Dollar. USDT is also the most widely traded cryptocurrency which means that the most amount of buyers/sellers will be trading USDT and prices will be competitive.
Step 3
The next step is to select a seller to purchase USDT from. A few things should be considered before selecting a seller.
The number of Trades Completed & Trade Completion Percentage — This is the track record of the seller and assurance that the seller is not a scammer. Find sellers who have completion rates above 90% with a significant amount of completed trades. In the above example, the seller has completed 13 trades with a completion rate of 100%.
Price indicates the conversion rate between your local currency and the cryptocurrency you are hoping to purchase. In the above example, 1 USDT is priced at 386.75 Sri Lankan Rupees.
Crypto Amount is the total amount of crypto made available for sale by the seller. In the above example, a total of USDT 1,494.76 is available for sale.
Limit is the minimum and maximum amounts of purchase that can be made to this seller. In the above example, the seller is accepting a minimum purchase of LKR 578,000 and up-to a maximum purchase of LKR 578,101.64.
Bank Transfer is the payment method accepted by the seller. There are multiple payment methods available, but by far the most popularly used are bank transfers.
Once you’ve selected a seller that fits your particular requirement, click “Buy” to proceed to the next step.
Step 4
In the dialog box that comes up, enter the value of the purchase you are hoping to make in your local currency, and the corresponding amount of USDT based on the price of the seller will appear at the bottom of the screen.
Once the amount is keyed in, click “Buy with 0 Fee” to proceed with the purchase.
Step 5
The next screen will display a countdown timer which indicates the amount of time that is available to make the payment to the seller. In the above example, 14 minutes and 56 seconds are available.
The “Chat” tab on the top right corner of the screen allows you to speak with the seller prior to making the payment. As a best practice, reach out to the seller via the chat window and check if the seller is online before making the payment. (Shown Below)
Step 6
Exit the chat screen and click on the “Make Payment” button at the bottom of the screen to continue with the order.
The next step is to make the payment to the seller in return for the crypto that is being purchased. It’s worth noting at this point, that the seller has a limited time period to release the crypto funds to the buyer’s wallet once the payment has been made and until the transaction is marked as complete, Binance holds the funds in escrow.
Funds held in escrow can be released to buyers by Binance if the seller attempts to scam the buyer. In my experience this is not something that happens if the seller is reputed and has a strong order completion rate. If you do have a bad experience click on the “Appeal” button at the bottom of the screen to make a complaint and receive the funds from escrow.
The payment screen shows the payment amount due on the top of the screen and the seller’s bank details on the middle of the screen.
Make the transfer to the seller’s local bank account via mobile or internet banking and take a screen shot of the payment reference as proof.
Once the payment has been made, click the “Transferred, Notify Seller” button at the bottom of the screen. Once the the payment has been marked, go back to the chat window and inform the seller that the payment has been made. Also, attach the screenshot of the payment reference as proof of payment in the chat window.
Step 7
Once the payment has been made, the below screen will appear and a countdown timer will begin, indicating the time left for the seller to release the crypto to the buyer.
The seller will take a few minutes to check his/her local bank account to confirm that the payment has been received. Keep an eye on the chat window in case the seller has any additional questions.
Once the seller has released the cryptocurrency to the buyer, the below screen will appear.
Leave positive feedback for the seller at the bottom of the screen if the experience was a positive one and click on the “Check Wallet” link to proceed to the next step.
Step 8
The purchased funds will be available in the “Funding” wallet of your Binance account as shown below. Once this is confirmed, the next step is to transfer the funds to your “Spot Wallet,” to be made available for trading. Click on the “Transfer,” button at the top of the screen first.
Step 9
Once the “Transfer” menu is accessed, ensure that the “From” field is set to “Funding,” and the “To” field is set to “Spot Wallet.”
Select “USDT” in the next field indicating the currency.
Set the amount you want to transfer to the Spot wallet for trading in the “Amount” field.
Finally, click “Confirm Transfer” at the bottom of the screen.
Step 10
To sell USDT (for LKR) on the Binance P2P marketplace, repeat Step 1 and access the P2P trade screen.
In the P2P trade screen, click on “Sell” at the top left of the screen and then click on the three dots in the top right corner of the screen and select “Payment Methods.”
Essentially, the idea is that USDT will be sold on the Binance P2P marketplace, in return for LKR, which will be deposited by buyers into your personal bank account, the same way you deposited LKR to a seller’s bank account when buying USDT.
In order to achieve this, your bank details should be registered on the Binance P2P marketplace. This is a one-time activity.
Step 11
In the resulting screen, click on “Add a Payment Method,” at the bottom of the screen.
Step 12
In the resulting screen, select “Bank Transfer.”
Step 13
In the resulting screen, fill out your bank account details to receive the payments for the USDT you sell on the Binance P2P marketplace. Once the details have been entered, click on “Confirm,” at the bottom of the screen.
Step 14
Once a payment method has been added, enter the P2P trading screen again, and click on the “Sell” option at the top left of the screen.
Ensure that the currency at the top right corner of the screen is set to “LKR,” assuming that the bank account you are using is a Sri Lankan Rupee account.
The screen will display a list of buyers ready to purchase USDT. Select a buyer based on the amount of USDT they are willing to purchase (Limit), the price they are willing to purchase at (Price), and the number of completed trades and completion percentage.
Once a suitable seller has been selected, repeat steps 5, 6 and 7, with the exception that you are now selling and not buying. A few minor differences will exist, but largely, the experience is similar to purchasing USDT.
Ensure that the buyer deposits LKR to your bank account before releasing the USDT to the buyer, and then complete the trade by leaving feedback for the buyer.
Step 15
In conclusion, the above steps are the ones involved with buying and selling USDT on the Binance P2P marketplace. The idea is to purchase USDT, use it for trading and staking, and once a profit has been earned, selling some of it on the P2P marketplace and converting back to LKR.
