BoE Telling Banks to be Ready for Negative Rates Is Another ‘Boost’ for Crypto & DeFi
The Bank of England told British banks this week that they will need at least six months to prepare for a shift to negative interest rates.
It was back in October that BOE asked banks to be prepared for sub-zero rates after revealing in September that it was exploring the possibility to lower the rates below zero if necessary.
In a letter published Thursday, the head of the Bank’s Prudential Regulation Authority, Sam Woods, said a majority of banks would need time to implement tactical or strategic solutions to accommodate a negative bank rate, which is six months.
But the Bank also clarified that it is not sending a signal that negative rates are coming at some point in the future, but that it would be a step to be taken if the recovery to the UK economy falters. BoE had forecast a 4.2% slump in the first quarter, while the Threadneedle Street economists forecast the pre-pandemic levels will be achieved by GDP by March 2022.
This will Boost Asset Prices
BoE’s quantitative easing bond-buying program meanwhile remains unchanged at £895bn after pumping an additional £150bn into the economy.
In December, banking executives from Santander and HSBC warned that their systems weren’t ready for negative rates yet. Negative lending rates, which are expected to lower borrowing costs, would result in a loss of income for savers and pension funds.
Besides money printing, it has been ultra-low interest rates that have pushed investors to Bitcoin and cryptocurrencies as they search for an asset that could provide them higher returns.
Ever since the March sell-off, Bitcoin has jumped more than 1,000%, Ether did 17x, altcoins pumped, and DeFi tokens have simply exploded. Nigel Green, founder, and chief executive of deVere Group said,
“Whilst the debate on whether negative interest rates help the ‘real economy’ or not will continue, there is no doubt that they would help boost financial asset prices.”
According to him, investors will now be looking to top-up their portfolios and move to capitalize on “the lower entry points now before the next significant rally.”
Even Rates on Stablecoins in Double Digits
In the cryptocurrency market, even fiat-based stablecoins are enjoying high-interest rates, especially in the decentralized finance sector.
"Interest rates on stable coins are going to 18% or 20%"@ger313 Quantum Economics Director of Communications
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) February 5, 2021
Popular in the decentralized finance space, the lending rates on stablecoins are up to double digits, as per Defirate. The lending average rate in the last 30 days for DAI is between 2% to 17% on different platforms; for USDC, it goes up to 14%, and USDT’s lending rate gets pushed to 17%.
The cryptocurrency market offers tons of opportunities for investors who want to build on their wealth if negative rates are implemented. And as Green said,
“The best way, as ever, is to bolster portfolios, ensuring they are properly diversified across asset class, sector, region, and currencies.”