Inflation Outpaces Fixed-Term Rates: Is Bitcoin The Solution?


Fixed-rate savings interest typically runs higher than rates offered for standard savings accounts. When interest rates are high, capital is more expensive, and when interest rates are low, bank customers will not receive a satisfactory return. Without adequate return, banks lose purchasing power as other investment opportunities are sought. As inflation outpaces fixed-term rates, is bitcoin the solution?

Zero-interest rate policy and bitcoin

In a September 15, 2020, interview with Stansberry Research, Robert Kiyosaki, author of Rich Dad, Poor Dad, said gold, silver, and bitcoin are investments in disaster. According to the author, “If everything was perfect, you wouldn’t need gold, silver, and bitcoin. Zero-interest rate policy (ZERP) says we don’t want your cash or savings.”

According to Kiyosaki, this current financial situation forces investors into the equity, real estate, or bond markets. He believes investors need to be better informed—and trade-in information. “There is no correlation between the price of a stock and the underlying fundamentals,” he added, “information is the key to the future, and you have to be up to date.” Kiyosaki is of the opinion that when a vaccine is released bitcoin, silver and gold may take a short-term dump—if this happens, he considers this to be a buying opportunity.

What options do investors have?

Capital flows to regions where inflation exceeds the cost of borrowing. Investors earn more by speculating in appreciating stocks, commodities, and real estate if they can borrow at 4% and inflation is 6%.

In China, India, and other countries in Southeast Asia and Latin America, borrowing costs are less than the commonly accepted valid rate of inflation. With companies and industries growing in these regions, stocks become doubly attractive to investors.

For years, pundits have promoted bonds over stocks when a market crash is on the horizon. While some bonds and bond funds may appear more stable than stocks, today’s unique situation maximizes bonds’ weaknesses and minimizes their strengths. With weaker returns in cash and money markets, liquidity may offer more significant benefits in the current economic environment.

Others see investment in real estate as unstable too. Bankruptcy, loss of jobs, vacancies caused by international college students’ restrictions, and eviction prohibitions have greatly reduced income from property investors.

Bitcoin’s global user base is up by 189%

Around the world, central banks have been fueling the markets with liquidity. In an interview, Jeff Booth, CEO of BuildDirect and author of The Price of Tomorrow, he commented that the government’s irresponsible money printing is exacerbating the mounting debt challenge compared to technology, where prices decrease efficiency is increasing. Booth believes money printing has created a competition between the “deflationary technology and the inflationary forces that stem from central banks’ monetary policies.” Furthermore, Booth thinks technology will ultimately win against money printing—resulting in the attachment of beleaguered national fiat currencies to bitcoin.

The stability bitcoin’s cap provides is one reason the global cryptocurrency user base has jumped 189% since 2018, as noted in the Global Cryptoasset Benchmarking Study published by the University of Cambridge and Centre for Alternative Finance. The study found 101 million unique users enrolled in bitcoin and crypto-asset usage with service providers in the third quarter of 2020, which bodes well for bitcoin.

The upcoming election and bitcoin

During economic turmoil, many investors see bitcoin as a safe haven in which they can hedge their wealth and protect money and finances in times of unsettling inflation and economic discord. Considering the instability of the dollar, many notable investors such as Paul Tudor Jones are now viewing cryptocurrencies like bitcoin as a hedge against the “great monetary inflation.” 

As of the time of writing, U.S. national debt has exceeded $27 trillion and bitcoin has been trading sideways. Analyst Dan Popescu reflected on the current state of affairs in a recent podcast. According to Popescu, Joe Biden is expected to win, in which case, the dollar will weaken, and gold will climb even higher as the election date draws nearer. Further, Popescu believes if Trump wins, the dollar will rise along with the stock market, and gold will retrace—a temporary situation because the monetary crisis will explode even more if Donald Trump retains office. However, not everyone is in agreeance, which is why some bitcoin investors are sitting on the sidelines, waiting to see what unfolds after the election.

MicroStrategy
MSTR
and Square

SQ

In August, MicroStrategy announced that they had purchased 21,454 BTC for $250 million; today, Jack Dorsey’s Square, put 1% of its total assets in bitcoin (approximately $50 million). Then, a big question to think about is this—will other companies follow suit and begin investing a small percentage of their assets in bitcoin? Whilst it is too early to say what will happen, one thing is clear—if inflation outpaces fixed-term rates in the short-term, then this could push companies to seek out alternative investment opportunities like bitcoin.

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