Bitcoin Bulls Might Get Negative Rates From Central Banks, Just Not the Fed

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As Federal Reserve Chair Jerome Powell steers U.S. monetary policymakers away from negative interest rates, he risks becoming increasingly isolated among the world's top central bankers.
Officials in the U.K., Europe and New Zealand are reportedly considering the once-unthinkable strategy of pushing interest rates below zero, seen as a form of economic stimulus. And bitcoin might be a beneficiary of looser monetary policy outside the U.S., even if the Fed never joins its foreign counterparts.
The divergence over the issue shows just how challenged central bankers are as they struggle to find consistent strategies for healing economies devastated by the coronavirus and related lockdowns. The World Bank on Monday forecast that global output will tumble by 5.2% this year, the worst recession since World War II.
With the situation so dire, more central bankers are willing to consider negative interest rates, which encourage people to spend money by making it more costly to deposit money in a bank account, as a viable monetary-policy tool. U.S. President Donald Trump joined the chorus last month, tweeting that "as long as other countries are receiving the benefits of Negative Rates, the USA should also accept the 'GIFT.'"
It’s unlikely that Powell will change his tune now, with Federal Reserve policymakers scheduled on Wednesday to announce the outcome of this week's two-day, closed-door meeting. So far, the Fed's response to economic crisis has been to cut interest rates to zero, roll out emergency-lending programs and inject trillions of dollars of new money into the financial system via asset purchases.
As recently as month, Powell said that top Fed officials "do not see negative policy rates as likely to be an appropriate policy response here in the U.S."

Federal Reserve interest rates. Source: Macrotrends
Bitcoin prices do appear to have risen in sync with this year's announcements of new stimulus measures. According to the cryptocurrency research firm Delphi Digital, bitcoin began to “flirt” with the psychological $10,000 price threshold last week as the European Central Bank and Bank of Japan ramped up their asset-purchasing programs by a combined $1.5 trillion.
And now the drumbeats are starting for negative rates.
Last month, Bank of England Governor Andrew Bailey raised hackles when he told a parliamentary select committee that negative interest rates were under “active review” for the very first time in the bank’s 324-year history. The week before, he had explicitly ruled out the possibility.
The U.K. central bank already has cut its base interest rate to a record low of 0.1%.

Bank of England interest rates. Source: BoE
Then there's the European Central Bank, led by President Christine Lagarde, which opted last week to expand its stimulus measures by 600 billion euros.
But central bank analysts still forecast an 8.5% contraction in the euro area this year, and ECB board member Isabel Schnabel said Tuesday that cutting rates below zero "remains an option."
"Our experience with negative interest rates has been positive," the German economist said in a Twitter Q&A, according to Reuters.
The Reserve Bank of New Zealand said last month that negative rates could "become an option in future,” possibly as early 2021.
Central banks' dalliances with negative interest rates in the mid-2010s didn't seem to affect bitcoin's price. But the digital asset has grown since then, with a market capitalization that's roughly 20 times where it stood when the ECB went negative in 2014.
And while analysts in the past claimed that bitcoin was uncorrelated with most traditional assets, recent price action has shown an increasing connection between the cryptocurrency and broader economic and market developments.
Bitcoin is now increasingly regarded as a hedge against inflation, and negative rates represent an aggressive form of monetary-policy easing that could ultimately help to push up consumer prices.
Another school of thought says that if banks try to set deposit rates at negative levels, many customers would just pull their money out to avoid charges. And rather than keeping cash under the mattress, some might instead decide to store the value as bitcoin in a digital wallet.
More broadly, negative rates might simply highlight how experimental monetary policymaking has become in the coronavirus era, Stack Funds, a bitcoin index provider, wrote in a report last month.
“By being in bitcoin, you’re opting into transparency," Lewis Harland, founder of analytics site Formal Verification, told CoinDesk.

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