Bitcoin Breaks $1,000: “Zero Interest Rates Run Amok”
For the first time since November 2013 the value of bitcoin today rose above $1,000.
No doubt, bitcoin had a huge 2016. The crypto-currency doubled over the course of the year, rising to $950 from $425.
There a few reasons for the surge, but mostly, it’s due to money printing.
"We are seeing the aftermath of zero interest rates run amok,” Bobby Lee, chief executive of BTC China, one of the world's largest bitcoin exchanges, told CNBC. “So bitcoin is a healthy reminder that we don't have to hold on to dollars or renminbi, which is subject to capital controls and loss of purchasing power. Rather it's a new asset class."
The renminbi in 2016 suffered its worst annual loss since 1994, slipping 7% against the dollar. That made it the worst-performing Asian currency of the year. The currency is likely to continue its slide this year, perhaps spurring another devaluation from Beijing.
Elsewhere around the world, central banks from England to Australia continue to indulge in lax monetary policy in a “race to the bottom.”
England, Japan, Australia, and others are cutting rates, in some cases into negative territory. And they're quantitative easing, which means buying their own bonds.
The Bank of England cut borrowing costs, boosted its QE, and doled out an extra $131 billion.
The Bank of Japan pledged to nearly double its purchases of equity-traded funds, from $33 billion to $60 billion.
Australia cut its benchmark interest rate to a record-low 1.5%, citing the Australian dollar's recent strength against the pound, euro, and yen.
And most importantly, Japan, the ECB, Great Britain, Denmark, Sweden, and Switzerland all deployed negative interest rates.
Again, this is likely to continue in 2017, as Britain withdraws from the EU, a collective that runs a real risk for disintegrating.
The only major country that’s tightening monetary policy right now is the United States. That’s exacerbated the declines of its foreign competitors.
Yet, the dollar itself is just a note underwritten by a government with $17 trillion-plus in debt – a burden that also figures to grow substantially in the years ahead. And inflation is expected to accelerate in 2017, despite the northward trajectory interest rates.
Contrarily, bitcoin is a decentralized currency that’s not tied to any single country’s policy decisions. It’s governed by simple supply and demand, with the former being limited.
Like gold, bitcoin provides an alternative to whimsical fiat currency.
A spate of new bitcoin products has also spurred demand for the digital currency.
One example would be Bitcoin Capital, a fund launched by a high-risk, high-return Bitcoin fund managed by Max Keiser and Simon Dixon. The Winklevoss brothers’ bitcoin ETF and investment solutions from blockchain hedge fund Polychain have also raised the currency’s notoriety, accessibility, and credibility.
Generally speaking, bitcoin insiders and experts expect the market will continue to grow, with an exponential "network effect" eventually carrying bitcoin into the mainstream.
In all likelihood, $1,000 is just the beginning for bitcoin.
Jason Simpkins is a seven-year veteran of the financial publishing industry, where he's served as a reporter, analyst, investment strategist and prognosticator. He's written more than 1,000 articles pertaining to personal finance and macroeconomics. Simpkins also served as the chief investment analyst for a trading service that focused exclusively on high-flying energy stocks. For more on Jason, check out his editor's page.