This Week’s Top Headlines

i) Further insights on Budget 2023 and EPF concerns from experts. RinggitPlus founder Hann Liew and Economist Sani Hamid discuss the impact of the latest budget on Malaysia’s economy and the alarmingly low retirement savings of Malaysians.

ii) Bitcoin deepens its retracement, briefly falling below $22,000 as crypto-friendly bank Silvergate delays its 2022 annual report and suspends its crypto payment network.

Scroll down to read the details.

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On Wednesday (Mar 1), we invited the founder of RinggitPlus, Hann Liew, and Economist Sani Hamid to discuss the implications of the Budget 2023 on the Malaysian economy and the impact of low EPF savings on Malaysians.

The session is recorded. You may listen to the full replay on our Spotify.

Here’s a summary of the questions posed to the speakers during the session:

1. What is your general opinion on the Budget 2023? Yay or Nay?
   
   Both speakers agree that the Budget is satisfactory, with everyone getting a small piece of the pie. However, some improvements could be made, such as in the case of the EPF cash aid.
   

2. The proposed reduction in income taxes for the M40 group and increase in taxes for the wealthy is a topic of discussion. What are your thoughts on this decision, and do you believe it will help bridge the wealth gap?

   
   The proposal to reduce income taxes for the M40 group will benefit everyone, including the rich (T20s), but except for the extremely wealthy. Due to the nature of how progressive taxes work, the tax rate for the first RM100,000 anybody makes will be reduced by 2%.
   
   So this decision will benefit everyone, excluding the top 2%, who will see their taxes go up by 2%.
   

3. The government's decision to offer RM500 to EPF members aged 40 to 55 with less than RM10,000 in their account 1 has been met with skepticism by some who view it as a mere publicity stunt. What is your opinion on this aid?
   
   It is mostly a publicity stunt.
   
   The government is in the right direction to encourage citizens to contribute to their EPF by first infusing members’ accounts with cash. But this move costs the govt over RM1 billion, which could honestly be used in other ways to replenish EPF balances.
   
   RM500 compounded at 6% annually will only net you RM1,200 in 15 years, which honestly does not make much difference to the poor.
   
   Hann suggested that Malaysia could follow Singapore by introducing a “matching contribution” scheme, where the government will match members’ voluntary contributions up to a certain amount.
   
   Sani suggested that instead of doing a one-off cash infusion, the government could make this a yearly thing and continuously top up a sum to poorer EPF members.
   

4. According to statistics, 71% of Malaysians below the age of 55 do not have enough EPF savings to lift themselves above the poverty line, which can be attributed to the government's allowance of EPF withdrawals.
   
   Why is it not advisable to withdraw early from EPF, and did the withdrawals genuinely benefit citizens or merely increase their reliance on it?
   
   EPF is intended for retirement and serves as a safety net when one can no longer support themselves or their family. Hann gave an insightful analogy by relating time with money:
   
   “When we are young, we are able to use our time to make money. However, as we age, our ability to convert time into money decreases. This is why EPF is crucial. It is money for when you can no longer support yourself or your family.”

   
   However, the Pandora's box has been opened, and the Rakyat now depends excessively on such withdrawals. It is essential that the government closes this box.
   

5. What options are available for those who require money to pay off their debts apart from withdrawing from their EPF?
   
   Firstly, one should never resort to withdrawing EPF savings to settle debts. Sani elaborated on a few reasons for this:
   

   • Selling assets to pay debts is not a prudent strategy.

   • EPF savings are untouchable assets for creditors. Even if you declare bankruptcy, liquidators cannot access your EPF savings by law.

   • You will not be addressing the core issue in your finances by withdrawing from EPF savings. If you spend more than you earn every month, regardless of how much is withdrawn from EPF, it will not be adequate.
     

   Solution by Hann: Get your debts restructured with your bank by opting for a different product. Consolidate your debt to a lower interest. Do your best to bring the APR down to 7%. This is one of the low-hanging fruits which will not affect your credit score.
   

6. Apart from requesting early withdrawal, what alternative measures can individuals take to boost their savings and financial stability?
   
   Financial freedom is not a difficult concept to grasp. It just basically means that you spend less than you earn every month. With the additional balance, use it to buy assets (ie. FD with banks, shares, etc) or pay off your outstanding debt.
   
   Sani stressed that it doesn’t matter how big your debt is, as long as you spend less than you earn, you’ll be able to gradually pay it off with time.
   
   To boost financial stability, try to:

   → increase your income (part time teaching, freelancing, driving for grab, etc)
   → reduce your expenses (cut down on subscriptions, save electricity, drive less, etc)
   → do a combination of both
   
   Hann said that it’s difficult to encourage people to change their livelihoods. Instead, he suggested to do the pain free stuff first:
   
   - Don’t lose out on tax reliefs.
   - Choose the right credit card.
   - Research on assistance/reimbursements provided by the government.
   
   Bankruptcy is the last resort, but do not use EPF to pay off debts! Go to Agensi Kaunseling & Pengurusan Kredit (AKPK) before declaring bankruptcy to persuade the banks to give you a better rate.

The session is recorded. You can listen to the full replay on our Spotify.

More retracement arrives for Bitcoin

The world’s largest cryptocurrency is having another tough week as market forces continue to constrain its upside momentum. At the time of writing, Bitcoin has fallen to $22,400, representing a 5.30% decline since the start of March.

The huge selling pressure slammed the markets on Friday (Mar 3), when Silvergate Capital, a crypto-friendly bank, suffered a collapse. According to a report by crypto analyst and writer David Gerard, the firm made up 61.7% of total, worldwide “cryptoasset prudential exposures”.

Things are looking quite bleak for Bitcoin, but the daily chart shows a bullish triangle forming, which could see Bitcoin rebounding back up to $24,000 should the lower ascending support hold.

What is Silvergate? And why does it matter?

It did not dawn to me how big Silvergate Capital was until I did some research on the California-based bank.

Silvergate was established in 1988 as a traditional bank that offered loans and accepted deposits from customers. However, in 2013, the CEO, Alan Lane, who had personal exposure to Bitcoin, suggested offering services to cryptocurrency clients.

This decision led to an exponential growth of the bank, attracting over 250 clients and accumulating $1.9 billion in assets by 2017.

The bank currently operates the Silvergate Exchange Network (SEN), an instant payment platform that allows crypto exchanges, institutions, and customers to exchange or transfer fiat currencies such as US dollars and Euros to any Silvergate account. The company is believed to be the first regulated entity to pioneer this payment system.

During the peak of the crypto bull market in the first half of 2021, the Silvergate Exchange Network attained a volume of $406.1 billion in transfers, which quadrupled the volume in the second half of 2020.

Silvergate’s assets, meanwhile, also saw a parabolic increase, hitting $16 billion during the 4th quarter of 2021 compared to just $6 billion just a year prior.

But it all went downhill from then.

Silvergate's association with the crypto market meant that it was vulnerable to the performance of Bitcoin. During the fourth quarter of 2022, the bank engaged in a highly leveraged ratio, which revealed that it held just 5.4% of capital against its total assets.

Silvergate reported a $1 billion loss during the fourth quarter of 2022 as investors withdrew over $8.1 billion from the bank following the FTX crisis, whereby the now-bankrupt exchange was one of Silvergate's largest clients. As a result, Silvergate’s share price plummeted by 75% over the previous three months.

The situation turned catastrophic when Silvergate announced on Thursday that it was unable to meet the March 16 deadline to submit its 2022 annual report, despite being granted an extension. Subsequently, several of the company's major cryptocurrency clients, including Coinbase, Circle, and Paxos, disclosed that they would sever ties with the struggling bank.

Silvergate's share price plummeted by an additional 58%, which, in turn, caused Bitcoin to decline by 6.40% to $21,950 before bouncing back to $22,400 at the time of writing.

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 10.30 AM on 5 March 2023 and completed at 5.00 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!