One of the most prominent Bitcoin narratives is that it is an asset not correlated with the going-ons of Wall Street, of the traditional world. Although this was seemingly the case for much of its earliest years, the past few years have seen macroeconomic and geopolitical trends affect the cryptocurrency market.
This was accentuated in March when there was a global liquidity event that saw investors in all markets rush to sell their assets for U.S. dollars.
On March 12th, stocks, commodities, Bitcoin, and even precious metals all fell in tandem, experiencing their worst trading days in years. That day has since been dubbed “Black Thursday.”
But, the effect that traditional finance has on Bitcoin could be a good thing, with the asset’s bull case recently getting a massive boost as calls for negative interest rates in the U.S. have mounted.
Negative Interest Rates In the U.S.?
Over the past few weeks, the economic situation around the world has trended worse and worse, despite the 35% rally in the S&P 500 and similar gains in other assets like Bitcoin and gold.
To combat these trends, the central banks and governments of the world have gone into overdrive, embarking on more fiscal and monetary stimulus than ever before in an attempt to save companies, save people, and ultimately save society. It’s a move that has had Bitcoin bulls buzzing.
In the past two months alone, the U.S. Federal Reserve has added over $2.3 trillion to its balance sheet, which is a 50% increase from its year-end balance for 2019. But it isn’t enough, analysts are saying.
Chart from Holger Zschaepitz (Twitter)
Narayana Kocherlakota, an economist who served as president of the Federal Reserve Bank of Minneapolis in the six years after 2008, recently penned a Bloomberg article titled “The Fed Should Go Negative Next Week” outlining a case for the U.S. central bank to bring rates to the negative. This was echoed by Alan Greenspan, a former Fed chairman, late last year.
Tyler Winklevoss, the co-founder of Gemini and a prominent Bitcoin bull, commented on Kocherlakota’s article with the tweet seen below, accentuating how he thinks this move would be unprecedented and potentially dangerous.
Negative interest rates…what could go wrong?
— Tyler Winklevoss (@tylerwinklevoss) April 25, 2020
Why Bitcoin Is a Solution
The idea goes that Bitcoin stands to benefit from this trend.
Unlike cash, which soon may require soon be expensive to hold due to negative interest rates, Bitcoin offers 0% yield and is a relatively deflationary currency due to the existence of halvings.
Furthermore, the idea goes that with negative interest rates, with increasingly bizarre monetary policy, comes the slow (but increasingly rapid) debasement of fiat currency, which should prove to be a benefit for a scarce and decentralized form of money like Bitcoin or gold.
Photo by Armando Arauz on Unsplash