Negative Interest Rates Driving Institutional Investors to Bitcoin: Crypto Trends Report
With negative interest rates making their way into major economies around the world, what impact it will have on Bitcoin?
CoinShares, a digital asset management firm released its Crypto Trends Report for November 2019, where it talks about how the negative interest rates are pressuring the traditional banking model and shifting the investment strategy.
As such, concerns regarding a recession cycle have risen and the contagion that could spread quickly across even the healthiest for markets.
The prices of hard assets might be above pre-crisis levels on the back of “cheap money” but “median income trails far behind median house prices.”
These concerns have investors returning to gold markets which are on a steady rise. Bitcoin, that has established itself as an “institutional store-of-value asset class” is also seeing interest from new funds.
Lower Yield Prompt Institutional Investors to seek Riskier Investments
As we can see currently the economies are making a shift from cash but demand for cash is still on the rise. The report mentions the Euro’s total cash value outstanding in banknotes is now exceeding €1.25tn with the US following the same trend. To control this upward trend, regulators are placing ceilings on potential cash use.
“Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy,” says IMF in one of its posts.
Cash is a liquid asset but returns no yield and is subject to inflation by default.
Purchasing Power of the Consumer Dollar in the US Between 1913 and 2018
According to the IMF, “lower-for-longer yields may prompt institutional investors to seek riskier and more illiquid investments to earn their targeted return.”
Bitcoin’s easier self-custody & trading gives it Advantages over Gold
In 2019, gold hit a six-year high, climbing to 2011 peak, marking the return of demand into the traditional asset class from central banks and investors alike. Negative interest rates, easy monetary policies, Brexit, and upcoming US elections contributing to the gold demand.
When it comes to the digital gold, the CoinShares says having checked off the requirements by regulators and shedding a near-decade of concerns on its viability, Bitcoin has “firmly established itself” as an institutional asset class, since the start of futures on the Cboe and CME.
Bitcoin’s physical markets have established on and off-ramps on a global scale and this the report says gives it advantages in terms of easier self-custody over gold. Moreover, global trade is easier to facilitate with BTC than with physical gold markets, especially with settlement finality.
Though Bitcoin was designed to address the payments industry, it has swung into Store-of-Value asset class with the additional benefit of total ownership and ability to transfer value easier and faster than other SoV assets.
As the price of Bitcoin recovers to $8,660 today and has been hovering around this range the past six days, many are optimistic yet some wonder if we will see a new high in 2019 or the 2020 bitcoin halving will kick in to effect during Q1. Time will tell, but for now this is great data and research to digest to keep understanding the number one blockchain-based crypto asset in Bitcoin, now over 11 years since its whitepaper release by Satoshi Nakamoto.
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