Central banks hand bitcoin an unlikely slogan.
/In order to succeed, bitcoin has always needed to rely on fiat currencies to misbehave to some degree. If they didn't leak value over the years, or abruptly clog the pipes of the banking system on occasion, then fiat currencies would be giving bitcoin - the best performing currency of 2015 - a better run for its money, so to speak.
But now, thanks to the technocrats who sit atop the most powerful organizations in the world, central banks, we observe negative interest rates in Sweden, Denmark, Switzerland, and Japan, and not for a limited time only, as far as anyone can tell. More likely is that the policy will soon wash on the shores of other major countries, including the US.
In order to entice customers to keep money at the bank instead of under the mattress, retail banks have traditionally provided three important advantages: convenience, security, and return. Once upon a time, a retiree could plunk down $1,000,000 in cash at the local bank and get a cool risk-free return of $50,000 per year, but today that "return" is a distant memory.
While bitcoin makes steady improvement towards achieving superior convenience and security, central banks have surrendered a full concession on return, and given bitcoin an unlikely slogan in the process: 0%. Traditionally, 0% has been used as a teaser rate to attract borrowers. Who knew we would live to see the day when 0% could entice savers?
If negative interest rates seem confusing to you, you're not alone. Think of central bank interest rates as a lever between borrowers and savers. Unlike the real economy, the money world is a zero-sum game, and moving the lever preferentially increases the purchasing power of one group over the other. Artificially low interest rates implicitly favor borrowers. Negative interest rates make that inequity explicit.
Central banks are sending a clear message: borrow money and put your cash into stocks, bonds, or real estate. The hope is that the increased spending will drive demand and enliven a stalling global economy. Unfortunately, it won't work. As we've seen in the past, artificially low interest rates create a measurable short term effect on spending, but are net detrimental in the long run. Overvalued asset prices introduce risk that they will fall to more fundamental levels, and increased leverage leaves corporations and individuals more sensitive to changes in the economy.
If bitcoin is on a flight to fix our finances, then it has just been dealt a healthy tailwind. For the first time ever, bitcoin has a superior risk-free rate of return to bank deposits. 0% isn't much, but it's not nothing either.