If you told economists twenty years ago about Bitcoin (BTC) and negative-yielding debt, they would be shocked.
In the 1990s or even the 2000s, decentralized digital money and a bond that made your money disappear with time would have seemed abstract — quite abstract. Now, however, these two financial trends, which came to fruition mostly over the last decade, have become widely recognized.
On Friday, Bloomberg reported that the negative-yielding bond situation has just developed. Their report, which cites the Bloomberg Barclays Global-Aggregate bond index, shows that $17 trillion worth of bonds is negative-yielding.
#Bloomberg re "unstoppable surge in negative yields."
Universe of negative-yielding bonds–once unthinkable (after all, who would pay rather than receive interest when #lending money)–reached $17 trillion at the end of August; and it's spreading its wingshttps://t.co/B6IhuYwUZc pic.twitter.com/P44I7G5ZeV
— Mohamed A. El-Erian (@elerianm) August 31, 2019
To describe how crazy negative interest rates are, here’s Bitcoin commentator Rhythm to explain. As he explained in a recent tweet, it’s essentially like lending someone your capital and expecting to receive less of it back in a few years’ time. In no world does this make sense. After all, investments are supposed to yield a return, not result in you slowly losing your capital.
What if I said I wanted to borrow $100 from you and pay you back $99 five years later?
Would you do it? Of course not.
Yet, this is happening right now with $17,000,000,000,000 of debt with negative yields.
The mother of all financial bubbles.
— Rhythm (@Rhythmtrader) August 31, 2019
There’s a silver lining in all this: the demand for Bitcoin and other alternative assets should only grow.
Bitcoin Demand to Grow Amid Bond Crisis
Raoul Pal, the former head of Goldman Sachs’s hedge funds sales business, recently sat down with Bitcoin podcaster Stephen Livera to talk investments. The economist explained that as it stands, the most popular asset classes make no sense for millenials with ten- to 20-year outlooks.
“There are a lot of parallels between now and the late 1930s. From 1929 to 1932 we had a debt crisis — interest rates hit zero. Then there was a lot of printing of money, and purchases of financial assets brought their prices higher.”
Bonds aren’t much better, Pal opines, drawing attention to the “virtually zero yields” — and negative yields in some cases — that debt deemed safe provides.
Even real estate isn’t attractive, with the prominent investor calling this asset class “unaffordable”, adding that it makes even less sense to purchase homes because they’re trading near all-time highs. Enter Bitcoin. Pal quipped:
“So what the hell does a millennial do to save for your future, when almost all assets have negative imputed returns for the next 20 years, 10 years? And the answer is well, you take the optionality of cryptocurrency and Bitcoin.”
He went on to explain the rationality of why buying Bitcoin as a millennial (and under) makes sense. Pal remarked that nothing like digital assets provide “that risk-reward profile where you can be wrong but you do it earlier on, you’ve still got plenty of time to accumulate wealth in other assets too.”
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