Bitcoin benefits as global negative yield bonds hit new highs

Bitcoin’s long-term bullish case could be further boosted as the global stock of negative-yielding bonds reaches new highs.

The value of the Bloomberg and Barclays Global Negative Yield Bond Index now stands at a record $17.05 trillion, surpassing the previous peak of $17.04 trillion reached in 2019. The figure has more than doubled in the past eight months.

Negative interest rate bonds provide less money than the original purchase price when they mature. The sharp increase in trading volume is the result of large-scale purchases of bonds by the Federal Reserve and other major central banks to boost liquidity in an effort to curb the economic impact of the coronavirus pandemic.

High bond reserves that generate negative returns are an incentive for investors and businesses to pour money into inflation-resistant assets such as Bitcoin. This is not only because these bonds generate losses when they mature, but also because the actual value of the currency received at maturity may be lower than the actual value when purchased, and large liquidity injections from central banks are expected to exacerbate inflation.

“As more central banks print money and drive down bond yields in response to continued pressure on the global economy, the economics around bitcoin become more attractive,” Joel Kruger, a strategist at LMAX Digital, told CoinDesk in a Telegram interview.

Since its inception, Bitcoin has been called "digital gold" because it is seen as durable, fungible, divisible, unique and scarce like precious metals. This year, several public companies and top investors have diversified their investments into Bitcoin, demonstrating its appeal as a reserve asset/inflation hedge.

The trend is likely to continue. John Ng Pangilinan, managing partner of Singapore-based Signum Capital, expects investors hungry for high yields to put their money into Bitcoin. “For our part, we are seeing an increase in the number of investors who want to earn yield by lending Bitcoin.”

Bitcoin holders can lend the top cryptocurrency on various exchanges and earn interest rates much higher than what they would earn on government bonds, up to 6%, according to data aggregator DeFi Rate.

Looking ahead, the number of bonds set to mature with losses is expected to increase as central banks have few plans to scale back or pause their bond purchases as the coronavirus crisis resurfaces in much of the world.

Expect more liquidity injections from central banks. Gold and Bitcoin will continue to benefit, markets will be well supported,” macro investor Dan Tapiero tweeted early Monday.

Bitcoin is currently trading at $16,335, up 2.3% on the day.

The cryptocurrency is up 51% so far this quarter and more than 120% year-to-date. Some analysts expect Bitcoin to consolidate before challenging its all-time highs by the end of December.