Negative-yielding bonds have dropped to zero after peaking in December 2020 at $18.4 trillion. The data is based on Bloomberg and Barclays Global Negative-Yielding Debt Index. Bonds with negative yields pay less money upon maturity than upon acquisition. Moreover, with central banks continuing their monetary tightening, the development restricts investments in risky assets, such as Bitcoin (BTC).
Even after accounting for inflation determined by the CPI (consumer price index), bond yields are still negative. However, whether it increases the amount of money entering Bitcoin (BTC) and other cryptos is yet to be seen.
How do negative-yielding bonds affect Bitcoin?
A bond payoff that exceeds market-based indicators of inflation expectations has a positive real yield. Therefore, the higher the real yield, the less motivation there is, to pursue gains from other assets like cryptocurrency, equities, and gold.
In the aftermath of the coronavirus-caused crash in March 2020, negative-yielding bonds increased significantly. Consequently, central banks reduced rates and increased bond purchases at record amounts of liquidity, which protected markets and the economy from the pandemic’s effects.
Investors began moving their money away from fixed-income assets. Instead, they moved towards technology stocks and Bitcoin (BTC) because of the subsequent thirst for yields.
The move of funds to risky assets resulted in many cryptocurrencies reaching their all-time highs. Bitcoin (BTC) hit a high of $69,044.77 in November 2021, while Ethereum (ETH) reached $4,878.26. As the negative-yielding bonds have reached zero, there is no liquidity flowing from banks. Additionally, with rising interest rates, the cost of capital is also high.
The development adds further uncertainty to BTC’s performance. Moreover, BTC’s volatility hit record lows towards the end of 2022, leading to consolidated price movements.
At press time, BTC was trading at $16,787.20, down by 0.2% in the last 24 hours. Moreover, the original crypto is down by a whopping 75.6% from its all-time high.