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.
Odd Macroeconomic Trends
What’s weird, Bitcoin and negative-yielding bonds, which are assets that inherently are vastly different, seemingly have the same origins: the 2008 Great Recession. After this horrible financial dilemma, which cost mom & pop investors billions upon billions, the world’s central banks and governments were forced to take drastic action.
The United States’ Federal Reserve started injecting money into the economy through a monetary strategy called “quantitative easing”, better known as QE or open market operations (OMOs).
The European Central Bank (ECB) and Bank of Japan (BOJ) followed suit, also embarking on QE operations to bolster their balance sheet, resulting in a monumental surge in the stock market, and risk-on assets like Bitcoin too.
As a result of this and other political and economic factors, there began the era of negative-yielding debt. Now, according to Bloomberg, there exists over $13.4 trillion worth of debt that is negative-yielding — an all-time high for a type of asset that, per normal economic theories, makes no damn sense. What’s weird is that much of this debt is issued by governments or top-graded firms.
That’s not the only odd trend in global finance. As Ikigai’s Travis Kling notes, a Federal Funds rate that is above the IOER — the rate which consumer banks holding money with the Fed get paid; and the expectations of more QE are signs that we live in “weird times” from a global macro standpoint.
According to Kling and many other investors, these odd macroeconomic trends are clear signs to start to build allocations of safe havens, these being gold and, of course, Bitcoin.
Buy Gold, Buy Bitcoin
In a recent LinkedIn post from Ray Dalio, the co-chairman of massive hedge fund Bridgewater Associates, the billionaire warned of central banks’ effort to devalue their currencies and inflate the economy somewhat artificially.
He also used historical shifts in the macroeconomic and geopolitical climate, like the World Wars and the Great Depression, to explain that the economy is poised to see a “paradigm shift”.
This paradigm shift, per the legendary investor, who sports a net worth of over $18 billion, will see “the value of money depreciate ” and “significant domestic and international conflicts. In other words, the writing is on the wall for an alternative asset and stores of value, like gold or Bitcoin, to gain traction.
Dalio recommends gold, writing that it may be “risk-reducing and return-enhancing” for investors to add the precious metal to their portfolio. The Bridgewater Associates lead adds that normal securities and bonds could see diminishing returns, requiring investors to diversify.