• The global stockpile of negative-yielding bonds has vanished as central banks around the world raise interest rates at a record pace.
• Analysts had previously cited the stockpile of negative-yielding debt as a source of bullish momentum for bitcoin, which rose sixfold in the six months to April 2021.
• With the vanishing of negative-yielding debt, the case for investing in bitcoin has weakened.
As central banks around the world continue to raise interest rates at a record pace in order to combat inflation, the global stockpile of negative-yielding debt has vanished, weakening the case for investing in risky alternative assets such as cryptocurrencies. The value of the Global Negative-Yielding Debt Index from Bloomberg and Barclays has dropped to zero from a record high of $18.4 trillion in December 2020.
Negative-yielding debt is when investors receive less money at maturity than the original buying price, so the higher the number of negative-yielding bonds in circulation, the more investors would be incentivized to move their money into riskier investments like bitcoin. This incentive was increased following the coronavirus-induced crash of March 2020, as central banks injected record liquidity into markets and economies through rate cuts and bond purchases.
The result of this was that investors moved their money out of fixed-income securities and into Bitcoin (BTC) and tech stocks. This drove the price of Bitcoin up sixfold in the six months to April 2021, reaching record highs above $60,000.
However, now that the global stockpile of negative-yielding debt has vanished, the incentive for investors to move their money into riskier investments such as Bitcoin has significantly decreased. As such, the case for investing in Bitcoin has weakened. Analysts have warned that this could lead to a pullback in the price of Bitcoin, as investors look to more stable assets to put their money into.