BITCOIN IN THE ERA OF NEGATIVE INTEREST RATES – CoinGenius

Negative interest rates have been making big headlines lately, as several countries and big banks are now experimenting with the unorthodox monetary policy. More than ever, banks and national policymakers are experimenting with unorthodox cuts to interest rates, resulting in things like negative rate 10-year mortgage deals in Denmark, negative-yielding bonds, bank closures and consolidations in Japan, and depositors were forced to move their money into alternative means of savings such as fiduciary call deposits. The problem is plaguing banks even in traditionally strong countries like Germany. We’re in a currency war. One of the easier ways to stimulate your economy is to weaken your currency. deflation can be a natural signal that a market readjustment is needed to solve real value debt — not a call for the synthetic, centralized creation of more of the same.

As negative interest rates require a more or less cashless society, they couldn’t be implemented in countries where cash-based payments are the norm. Sweden, Denmark, and Switzerland are all countries with negative interest rates — the almost complete absence of cash in the countries has made it easy to implement.

Using a simple inflation calculator, one can verify the global trend for themselves. For example, $100 in 1956 would be worth $937.44 in 2019. 100 Japanese yen would be worth 607.57 yen today, and 100 Australian dollars from 1949 would have the current purchasing power of about 3,002.63 AUD. Should the global trend toward currency devaluation continue, it may not be long until another gigantic bubble looms over the world economy. This time, dwarfing the bubble of 2008. If it bursts, no amount of easy credit is likely to save the day. A move to ban negative interest rates in Germany is likely to face some challenges. Financial institutions in the Eurozone are now forced to pay a subzero, -0.40% penalty on their deposits with the European Central Bank (ECB). And they are obliged to keep mandatory reserves there. Under these unfavorable conditions, 115 banks are already partially passing on the punitive rates to their private and business clients, an analysis conducted by the German financial portal Biallo shows.

Negative interest rates are the emergency tools of Central Banks — they spur lending and investment in the economy when traditional measures have failed. Investors may tolerate marginal negative yields on sovereign debt because it is a safe investment, and they may be forced by their investment mandate into holding it. Governments have perfected the art of covertly robbing citizens of their purchasing power, through inflation. Inflation has eaten away the return on bonds, resulting in negative real interest rates.

A total $17 trillion of global bonds are now negative and it’s rising at a rate of a trillion a week.

What would happen if Bitcoin becomes an internationally accepted currency? Given that the number of bitcoins in circulation is limited, inflation will not be a concern and purchasing power would be retained.

Interest rates would be market driven and negative interest rates would be impossible. Investors would be loath to pay for the security of sovereign debt, because cold storage of bitcoins has zero marginal cost. Governments could introduce a tax on all bitcoin holdings, which could have the same effect as negative interest rates.

Gold has been performing splendidly in 2019. Gold CFDs are up more than 25 percent year-to-date, and it appears that the international economic uncertainty is only fueling the growth.

Bitcoin is not correlated to traditional financial markets is something that makes it attractive to investors in times like these. At the beginning of August, when U.S. President Donald Trump slammed another 10 percent tariff on $300 billion worth of Chinese goods, traditional markets tumbled. Bitcoin, on the other hand, gained more than $700 in less than 24 hours, potentially signaling that investors considered it to be a store of value and a hedge in tumultuous economic conditions.

Bitcoin has no obvious parallels as an asset class. Bitcoin is a bit like a currency and a bit like a commodity and a bit like a stock — yet different from all of them. If you want an analogy, Bitcoin is like gold but a) before gold had a long history of value and b) with a fixed hard limit to how much could ever be mined Bitcoin is different. With a strictly limited hard cap and predictable daily output, the bitcoin supply cannot be manipulated. Central banks can’t devalue it. No-one can “print more.”

As the world moves to negative interest rates, bitcoin’s monetary policy and price-performance make it an appealing alternative.

Bitcoin’s volatility, while a serious problem that needs to be addressed, doesn’t affect the coin’s ability to store value. Being the face of decentralization will make most people choose Bitcoin over other tokens, some of which may offer more stability or faster transaction times.

When China let the yuan fall against the dollar, we saw a clear uptick in bitcoin. Although, this correlation is far from proven over the long-term. As the best-performing asset of the year, not to mention the decade, it’s getting harder to ignore bitcoin.

Gold and Bitcoin are both anti-fragile bets. If the current macro story ends badly, both will do well. Gold is definitely a hope you are wrong story. Bitcoin is more nuanced. A scenario where Bitcoin goes up 100x is likely to be scary and disruptive and bad for many assets, but there is also a hopeful scenario where Bitcoin gives people greater sovereignty over their data and other assets.

Bitcoin can avert state governments from the convincing public to conform to the fiscal guidelines that do not assist the person’s benefits. If banks start imposing negative interest on deposits then citizens will effectively lose a percentage of their savings every year. Holding bitcoin and other cryptocurrencies in such scenario could prevent people from being the victims of negative interest rates. Activities like these provide more motivation to adopt crypto and enjoy freedom.