What is the relationship between Bitcoin and interest?

Central banks have been reducing interest rates one after the other in recent days.. Interest rate cuts undoubtedly affect the cryptocurrency markets as well.. We try to explain the relationship between Bitcoin and interest in this article.

Bitcoin and interest

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The main agenda in the global economy recently, falling interest rates. Real interest rates in many developed countries fell to negative values. Falling interest rates affect many markets. It is impossible for Bitcoin and crypto money markets, which are open 24/7/365, to be unaffected by negative interest rates.. So what is the relationship between Bitcoin and interest?

Finland-based Nordea Bank plans to reduce 20-year real estate interest rates to 0%. In many countries real interest rates (adjusted for inflation) have already fallen to negative values.. In the table below we see the real interest rates in selected countries (last column).

Before moving on to the relationship between bitcoin and interest, it is useful to remember the theoretical definition of interest: In its simplest form, interest is the cost of holding money. In other words, the citizen who keeps the money in his pocket or under the pillow in cash gives up the interest income that he can get from this money.. In other words, this income forgone is the cost of keeping the money.

Banks offer higher interest rates to persuade these people.. In this case, these people give up their current consumption and deposit their money in banks in the hope of spending more money in the future.. But now interest rates are falling globally and some countries have negative interest rates in real terms.. Due to the high liquidity in the market (quantitative easing), banks do not collect their money by paying high interest to people who have money.. In short, banks already say I have a lot of money.

What will those who have money in their pockets or under the pillow do with their money?

Other investments other than the time deposit accounts of the people we mentioned above they need to try their options. Options before it:

1- Stock markets,

2- Real Estate

3- Gold.

For this order, According to Grayscale’s Bitcoin survey, you can click on our article titled Demographic analysis of US investors .

We go step by step to reveal the relationship between BTC and interest.

1 – Stock markets

Many factors such as trade wars between the USA and China, global migration, Brexit affect the real markets negatively.. The decrease in the incomes of companies in the real economy is also reflected in the stock markets.. S&P500 and Nasdaq indexes entered a downward trend as of the end of July.

2- Real Estate

High property taxes in some countries, especially in the USA, led some investors to low interest rates. keeps it away from the real estate markets though. Some investors are also looking for highly liquid investment items.. Real estate cannot be turned into cash at any time.

3- Gold

We see that the correlation between gold and Bitcoin has increased recently.. Investors are turning to investment instruments like gold and Bitcoin due to falling interest rates and increasing global uncertainty.. However, gold is difficult and costly to store and transfer, leading some investors to the alternative digital gold, Bitcoin.

Please See: Global uncertainty, the correlation between Bitcoin and gold. increased

We tried to briefly explain the relationship between Bitcoin and interest. Investors are looking for alternative investment vehicles as interest rates fall. One of them is Bitcoin.. If even 1% of the hot money in the global markets flows to the Bitcoin markets, Bitcoin prices will double.

Note: This article does not provide investment advice.. It is for informational purposes.

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