Topic: Could negative interest rates in the US boost Bitcoin? (Read 2529 times)

It could, yes, but it depends on the global market situation. We already saw how a strong dollar affected all commodities and currencies and Bitcoin was not left out of these shenanigans.

It is the case in some german banks as well. Maybe in Switzerland too.

 in this scenario your money just sits there. no way of using that money to earn.

Come on, we're still far from that! I still have a savings account which brings me some interest.

That is the beginning of a deflationary spiral -- why spend today when your money can buy more tomorrow?
This might sound great for savers but in reality it wrecks economies. Because spending is the origin of wages, nobody gets paid if nobody spends and ultimately unemployment increases, and well it is a spiral so the negative effects are self-reinforcing.

A zero- or negative- interest rate policy is meant to encourage spending. Why save your money if it will buy less tomorrow? However, this can have unintended consequences, not least of which is a large amount of inflation-- why sell your stuff for a low price when people want to get rid of their money at any price?

Can't this trigger a run on the banks?  Why pay them to store my money when I can just hide it under my mattress? 

so does the bank than also pay me if i hold their money for them?

If this did happen I suppose it would boost bitcoin as some people may choose to not keep their money in banks anymore and choose to hold it in bitcoin instead, though I think that would be risky. I do think a lot of people would stop using banks if they started charging though but I can't see them doing this.

We already have negative real interest rates, which were supposed to boost BTC.
Negative nominal interest rates are a big step further.

It means hoarding cash in bank is to losing value.The savers have to find alternative investment, which may boost the demand of btc.

Could be Philippines. 4% is considered nothing compared to higher rates like Venezuela, Brazil and Russia which are more than 10%

4% interest on savings? 10% interest on loans? Where do you live?

Well if the gov't did that, it would be a socialist policy..

They're earning by giving you 4% per year interest on savings, and then giving me loans at 10% per year interest.
No work, no money, and they earn 6% of the base savings, thats what theyre doing, and god forbid that state intervenes and gives bussines loans without interest to those that want to break free of slavery and
start their own bussines.

cheers

I didn't say they could pass through payments - they certainly can.
But as dividends and not interest.

And this is not just semantics there are real, important differences between the two and what ownership of those residual cash flows imply.

I disagree. Earning revenue on loans is the traditional approach for banks but doesn't have to be how Coinbase or others do it. You share several other examples that would work to fund the interest payments...since offering loans with bitcoin is a very difficult endeavor.

usually banks invest people's money to get even more money.

They don't just sit and hodl it.

Interest is only payable if Coinbase et. al begin creating loans. This is the only way to generate cash flows to pay interest. They could decide to pay out a pro-rated portion of business profits generated from advertising on websites, transaction fees, etc. but that is not interest, that is dividends.

Keep in mind the key difference between nominal interest rates (the stated rate) and the real interest rate.
The real interest rate is what matters and that is approximated as:
real interest rate = nominal interest rate - inflation rate.

SO if the nominal interest rate is say 4%, but inflation is 4.5% you have a negative real interest rate.
Furthermore, if you have a negative nominal rate but also deflation, you can have a positive real rate-- take the example where the nominal rate is -0.5% and there is 1% deflation (and this is a real possibility in Europe these days). The real interest rate would be -0.5 - (-1.0) = +0.5%

Why would a nominal interest rate be negative? Well there are the rates targeted by central banks and that is merely a target, but an important influencer. The market for money demand - the supply and demand of loans, specifically - dictates the actual nominal interest rate. Rates markets work like any other market. A bank has $100 to lend, and there are 3 borrowers of equal creditworthiness: A, B, & C who each demand $100. Borrower A states he will borrow for 1%, B says he can afford to borrow for 2% and C for 3%. C gets the loan for 3% (this is an oversimplification, but the point is correct). Why can C afford 3% and A & B cannot? Perhaps C has a project that will return 4% on the $100 loan and he will capture the 1% difference as profit. Also, in the real world economy it is firms or companies making investment decisions that influence these rates A LOT more than individuals seeking mortgages (which are long term anyhow and backed by the collateral of the house) or personal loans.

So when nominal rates are negative it means that nobody is demanding money. No investors (firms) are bidding up the price of money via interest rates because they can't return more on investing it anywhere else. In fact, the economy is so awash with money that people will pay to get rid of it because of the cash drag it is causing. Hence the negative rates. In a nutshell.

Negative rates should spur investment because otherwise it is too costly to hold cash. Buying bitcoin as well as any other asset is a good alternative and all asset prices should increase if the theory plays out according to plan. However, people have a tendency to hoard money, or become so risk averse that owning money, even for a small fee is preferable to undertaking a risky investment.

If the bitcoin price stabilized some we could see interest being paid on deposit accounts with Coinbase and other BTC holding/savings firms.