Record Levels of Negative-Yielding Debt Strengthen Case for Bitcoin: Analysts

With negative-yielding bonds at a new high, investors are looking elsewhere for returns.

AccessTimeIconNov 16, 2020 at 11:51 a.m. UTC
Updated Sep 14, 2021 at 10:31 a.m. UTC
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Bitcoin's long-term bullish case may have gotten another boost as the global stockpile of negative-yielding bonds hits a new high.

The value of the Global Negative-Yielding Debt Index from Bloomberg and Barclays is now at a record level of $17.05 trillion, surpassing the previous lifetime high of $17.04 trillion reached in 2019. The figure has more than doubled in the past eight months.

Volume of global bonds with negative yields
Volume of global bonds with negative yields

A negative-yielding bond offers less money at maturity than the original buying price. The sharp rise in volume is the result of the massive liquidity-boosting bond purchases by the U.S. Federal Reserve and other major central banks to contain the economic fallout from the coronavirus pandemic.

The towering stockpile of bonds yielding negative returns is said to be an incentive for investors and corporations to pour money into inflation-resistant assets such as bitcoin. That's not only because these bonds yield losses on maturity, but also because the money received at maturity may be worth less in real terms than than when purchased, with the central banks' massive liquidity injections expected to boost inflation.

"The more central banks print money and push bond yields lower to contend with ongoing stress in the global economy, the more compelling the economics around bitcoin become," Joel Kruger, strategist at LMAX Digital, told CoinDesk over Telegram.

Ever since its inception, bitcoin has been dubbed “digital gold” because it is considered durable, fungible, divisible, recognizable and scarce, just like the precious metal. Several public listed companies and top investors have diversified their investments into bitcoin this year, validating its appeal as a reserve asset/inflation hedge.

The trend may continue. John Ng Pangilinan, a managing partner at Singapore-based Signum Capital, expects yield-hungry investors to pour money into bitcoin. "On our end, we are seeing an uptick in the number of investors looking at earning yield from lending out bitcoin."

Bitcoin holders can lend the top cryptocurrency on various exchanges and earn significantly higher interest rates than the yields offered by government bonds – up to 6%, according to data aggregator DeFi Rate.

Looking ahead, the volume of bonds offering a loss at maturity looks set to increase, as the central banks have little scope to scale back or halt bond purchases amid the resurgence of the coronavirus crisis across major portions of the globe.

"Expect more liquidity injections from central banks. Markets will be well supported with gold and bitcoin continuing to benefit," macro investor Dan Tapiero tweeted early on Monday.

Bitcoin is currently trading at $16,335, representing a 2.3% gain on the day.

The cryptocurrency has gained 51% so far this quarter and is up over 120% on a year-to-date basis. Some analysts expect bitcoin to consolidate before challenging record highs by the end of December.

Disclosure: The author holds small positions in bitcoin and litecoin.


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