My mother received her bank statement from LLoyd’s this month to discover that she received an interest payment of 28 pence – almost enough to buy a free range egg. It is hard to overstate the implications of this for people or entities who depend on yield on their investments. The experience must be bewildering for pensioners, frustrating for the majority of pension funds and extremely alarming for the minority of pension fund managers who have realised that rates are never ‘going back to normal.’ 

 

Negative Interest Rates

 

Last month we introduced the nascent concept of people living off Bitcoin dividends. Now we shall consider the implications for Bitcoin vis-a-vis mainstream finance’s low/negative yielding interest rates and Japan offers an excellent example of the problem in its full absurdity. Simply put, as Japan’s 1989 bubble imploded, the Bank of Japan (BOJ) printed Yen to buy Japanese Government Bonds (JGBs.) Naturally, this drove up the value of said JGBs and thereby lowered their interest rates. Japan’s citizens continued to age and the BOJ kept repeating the exercise. Fast forward to 2021 and Japan’s debt is a staggering $14.7 Trillion and has a debt to GDP ratio of 272%. The BOJ and the zombie mega banks continue to buy 5 Year JGBs at (concentrate…) -0.1%. So the interest rate cannot ‘go back to normal’ because the government’s debt load is 3x the size of the economy. 

 

The above ‘logic’ will continue to grow the $18 Trillion global pile of negative interest bearing bonds until it ends in what Bill Gross who resigned from PIMCO describes as a 

‘Financial Supernova.’

 

Interest rates in Bitcoin Land. 

 

The above is possible because of infinite fiat supply, an abundance of trust and a slowing economy. In cryptoland, Bitcoin’s supply keeps halving, the economy is booming and nobody trusts anyone. Whilst SCF does not engage in ‘yield farming’ the returns are indeed attractive. One can now get 5% p.a for BTC and 8% p.a on USDC (Circle’s stable coin.) Even greater returns are possible in more extotic cryptocurrencies which are ‘staked.’ Furthermore, lenders expect to lend approximately 70% of what the borrower posts as collateral of 100%. It seems only reasonable to assume that yield hungry mainstream institutions will be sucked into Bitcoin’s universe where one can get 8% on USDC. Therefore, we can assume that the market cap of negative yielding bonds will be sucked into crypto. This alone would require an 18x increase in BTC’s price.

Altcoins and Uniswap

 

We did not need to wait until the summer for the Bitcoin Dominance Index to drop to 49% – it reached this point by the end of April. One of the altcoins we are bullish about is Uniswap. With Coinbase’s IPO valuing the exchange at $65 bn and Binance’s token suggesting a market cap of $98 bn, successful crypto exchanges are clearly money printing machines. The Decentralised exchange Uniswap has the advantage of charging eye watering fees but not the inconvenience of thousands of employees and dozens of offices. It appreciated ~40% in April and we believe it will help to put wind in SCF’s sails for months to come.

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Author
James Cox

James Cox

Chief Executive Officer at Taipan Trading & Investments Pte Ltd

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