After the global financial crisis in 2008, negative interest rates have been widely accepted by central banks.
Expansionary value based policy stimulates business activity in short-term perspective and positively affects export of goods. But excessive rate lowering and quantitative easing policies may provoke countries to suppress international exchange.
The global stock of negative-yielding yields is now in excess of $17 trillion as rising market volatility lends extra force and denies standard economic instruments.
And the tendency seems to hold as the Federal Reserve cuts rates down to 1.75% on October 30. With rates lower than 2 per cent, rewards from zero-risk tools doesn’t even cover inflation. IN this case, many investors will turn to much more rewarding alternative solutions.
Era of negative interest
Negative yield policy has been pushed throughout the years by a great number of central banks around the world. It states that private economic institutions are obliged to pay fees for the containment of excessive returns.
The National Bank of Denmark became a pioneer and introduced negative market values in July 2012 during the European economic crisis. Two years later European Central Bank went along in order to prevent deflation. Today, the National Bank of Switzerland holds the record for world’s lowest yields — -0.75% annually.
In Feb 2015 Sweden lowered their reverse repurchase agreement values down to -0.1%. Later that Fall, Norges Bank of Norway cut their yields to -0.25%.
In Mar 2016 negative yield policy was introduced in Hungary and Japan and resulted in -0.12% annual returns for government bond holders.
“You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States,” stated Alan Greenspan, former Federal Reserve Chairman, about the spread of negative rates in his CNBC interview.
One could legitimately ask: “Why would anybody lower their acquiring power?”. First of all, extremely low to negative yields are mostly established in countries with a developed economy. Such countries have served as economic magnets for decades and continue attracting new participants. However, these countries’ GDP growth rate has been unsatisfactorily low for quite some time, with most standard expansionary economic policy tools proven to be gradually losing their effectiveness.
Establishment of negative yields contains serious hazards. It can lead to massive asset outflow from the traditional financial system to high-risk participation spheres and result in a full-scale economic crisis. On the other hand, such yield policies prevent people from gaining value based rewards and can help stimulate the economy due to higher customer demands. Either way, low or negative yields are clear signs of an upcoming crisis. Ludwig von Mises said that less competitive economic policy only creates a boom in capital goods production; and such boom is always short-term. Negative yields are not the only instrument in the modern monetary regulators arsenal. Some practice quantitative easing, meaning that central institutions simply intrude the open market to control the yields of government bonds.
Crypto assets and the rise of exchange strategies based on market values
Exchanging an asset that was acquired for a lower market value, with a higher value is a market strategy that allows you to gain rewards by taking advantage of asset market value differences. It is as simple and straightforward as that. Such an exchange of assets provides a way to exploit market inefficiencies and a mechanism to ensure that substantial asset value deviations do not exist for long periods of time. And while it may seem a risk-free way to earn a living, any rewarding opportunity in markets is often eliminated in a matter of microseconds, making it extremely difficult to profit for average users with simple technology. And Nimbus has a solution prepared for such all users irrespective of their asset classes. Avalon is our crypto exchange algorithm, a product of a proud and long-term partnership between Nimbus and Quadum. Constant updates are made to ensure that Avalon is capable of maintaining a rewarding environment even while managing large asset volumes.
Bitcoin Halving & Ethereum 2.0 bring new opportunities for the market
Excluding the possibilities at the fintech market, there might be another opportunity on some crypto assets. May 2020 halving will reduce the new supply of Bitcoins by $63,000,000 per week and potentially cause the market cap to rise by trillions of dollars during the following years.
A major update on Ethereum network is scheduled to launch Feb 2020, and will definitely significantly change the positions on this market. With stakes in further decentralization, Ethereum will surely gain volumes and attract a larger user base, which will result in overall market cap rising.
Nimbus Senior Advisor states that recession is unstoppable by current policies:
“The yield cuts starting in September 2007, January 2001, and June 1989 did not prevent recessions that started in December 2007, March 2001, and July 1990. The lesson: easy rewards are not a panacea. Once the cycle has turned, the Fed cannot stop a recession, try as they might.”
What’s more important, central institutions are not going to change their policies in the near future: 2019 global growth is back to its slowest pace since the 2008–2009 economic crisis, with GDP growth at 3.0 percent.
At the same time, decentralized services offer much more attractive yields. Nimbus Core offers users access to a holistic ecosystem — a platform of stand-alone blockchain-based applications soldered to a modular basis, that include various solutions, with incredible rewards.
Major cryptocurrencies have yet another chance to effectively prove and strengthen their real asset appreciation. The rise in the demand for these assets will stimulate much broader markets and positively affect the FinTech market. While we’re waiting for the Spring activity boom, Nimbus aims to continue implementing technological advancements that provide necessary functionality for deeper integration into the ecosystem; and Quadum keeps developing Avalon to guarantee its effectiveness and provide a highly rewarding expereince for each individual user.