Despite the roaring recovery in the S&P 500, crypto, and other markets, many facets of the global economy remain in recession. Dozens of millions are unemployed, consumer spending is down, and the global supply chain has come to a screeching halt.
With cashflows going negative around the world, meaning firms are at risk of going bankrupt and millions more risk losing their jobs, central banks have announced increasingly stronger forms of monetary policy to save businesses and individuals.
This was accentuated when the incoming head of a Group of Seven (G7) central bank announced that it is considering negative interest rates. It’s a statement that many in the crypto industry have embraced as a sign of why Bitcoin has intrinsic value in today’s world.
Bank of Canada’s Incoming Governor Floats Negative Rates
When consumers hold money in banks, they expect to be paid an interest rate. But, this financial trend has started to change as central banks have tried to spur economic growth.
While currently rare, more and more banks (mostly in the Nordic region thus far) have begun charging depositors for holding money with them, a stark contrast from the yields that savings accounts have classically offered over the decades.
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Canada could soon be joining the mix, with the Bank of Canada’s incoming governor indicating in a press conference that the central bank is considering the possibility of introducing negative interest rates.
BANK OF CANADA’S NEW GOVERNOR SAYS NEGATIVE INTEREST RATES IS ON THE TABLE…
— Gold Telegraph ✪ (@GoldTelegraph_) May 1, 2020
The Bank of Canada is currently imposing a policy interest rate of 0.25%, which has mostly followed that of the U.S. Federal Reserve over the past few years.
That’s Where Bitcoin & Crypto Comes In
The idea goes that Bitcoin and other crypto assets stand to benefit from the global trend of central banks becoming increasingly aggressive.
In a research report published on April 30th, Phil Bonello, head of Grayscale Investments’ research division, commented on this narrative:
“Today’s macroeconomic environment continues to reinforce that a scarce, digital, non-sovereign form of money may be an attractive place to store value and may serve as a hedge against unrestrained money printing.”
Bonello contrasted central banks’ quantitative easing with Bitcoin’s block reward halving, which has recently been dubbed quantitative tightening due to the fact that the event drops the issuance rate of the crypto, instead of increasing issuance as QE and extremely low (or even negative) interest rates do to fiat.
In a world of negative interest rates, holding Bitcoin and other crypto assets makes that much more sense to hold over fiat currency — which is not only being taken away from depositors and is also being debased by aggressive monetary policy.
Encapsulating this sentiment, Mike Novogratz — the CEO of Galaxy Digital — said “Buy Gold. Buy Bitcoin” in reference to the news that Deutsche Bank will be implementing negative rates in savings accounts.
Buy Gold. Buy $btc. https://t.co/n10AWjthAo
— Michael Novogratz (@novogratz) April 30, 2020
Photo by Armando Arauz on Unsplash