There is an ancient Chinese proverb that goes: “May you live in interesting times”.
It will come as no surprise that the intent of this phrase is considered not to be a joyful expression of opportunity, but a curse.
Being a traditional investor in equities and bonds at times like this sometimes feels like a hex. Stock markets are rocketing upwards at a time when the world economy is under intense strain. Global growth is forecast to crater. One Bank of England official has predicted the country faces the worst recession in 300 years. So knowing where to put your hard-earned money to produce the best return is getting more difficult by the day.
And a clear signifier of the times we live in is the emergence of negative-yielding bonds.
On Wednesday 20 May the UK crossed the Rubicon to sell its first ever negative-yielding government gilts.
The UK Debt Management Office, which manages Britain’s debt on behalf of the Treasury, reported it had sold £3.8bn of three-year gilts at a minus 0.003% yield. Apparently there was demand for up to £8.1bn. Taken together with the price of gold soaring to all time highs, it would seem to indicate investors rushing for the exits to pile into safe-haven assets.
Institutional investors like insurance companies and pension funds are required to own government bonds, regardless of how much they pay out.
And in effect, negative yields mean investors are — instead of receiving interest on their investments — paying to hold the bond and lend to the UK government. The theory is that they may be able to sell these bonds for more, further down the line, as yields fall further into the red and prices rise. With bonds, prices and yields move in opposite directions.
There are few winners from this state of affairs. Aside, of course, from Bitcoin.
The accusation often levelled at cryptocurrency is that it is a non-producing asset. Like gold, investors can gain capital appreciation if prices rise, but they normally receive no loyalty bonus in the form of interest if they HODL. Even at historically low interest rates, cash deposits held with banks earn an — admittedly tiny — annual return. That’s all changing now.
On the same day as the UK’s historic negative yield bond auction, Blockchain.com announced plans to launch a new product to offer 4.5% annual interest on Bitcoin deposits.
The block explorer and cryptocurrency wallet is one of the longest-service companies in the sector. It was founded in 2011, just two years after Satoshi Nakamoto’s white paper on peer-to-peer electronic cash changed the world forever. It has since had backing from Google’s venture capital arm.
As reported in TheBlockCrypto, Blockchain.com unveiled the project just two months after its expansion into retail lending.
Blockchain.com is not the first mover in the space, either. Earlier in May Germany’s Bitwala debuted its own Bitcoin Interest Account. Hold your BTC in a Bitwala wallet and gain 4% annual interest, paid weekly.
As if new programmes of mass quantitative easing from central banks are not enough, now the world’s largest economies are turning yields negative. Bitcoin and cryptocurrency is simply an idea whose time has come.
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