Updated: Jul 13
Amid the panic of a global pandemic, concerns about the economy, and simmering tensions ahead of the general elections; all eyes were on the US FED last week. Early speculation about what their top brass had come up with had journalists scribbling on papers before FED chief Jerome Powell began his address.
The announcement by the central banker did not surprise many. Few were expecting interest rates to rise in the current economic climate. It was also well known that we couldn’t fall off the floor, so the anticipation of further rate cuts was muted. Keeping rates at near-zero for an extended period sets us up for a dollar debasement for the foreseeable future, until the economy leaves the O.R.
What this means for Americans
Low-interest rates are largely seen as positive for the general population. Lower mortgage rates leave your tab looking a little easier on the eye. Rate cuts also mean credit card reprieves and lesser costs on consumables because the dollar is cheaper to obtain.
The thing about the financial world though, is that for every bit of enjoyment, someone has to ultimately foot the bill and that’s usually the end consumer. Though rate cuts spare your pockets they hit your savings stash by depressing the growth of your money.
Lower interest rates are cross-cutting, from your bills to your savings.
Investor reaction to the announcement
Whenever rate cuts happen, it’s always expected that the stock market will begin to rally. It’s no surprise because we’re talking about investors here, who on average are very smart people. No smart investor is letting their money go stale at a bank with depressed rates when they can go get some Tesla or Amazon stock.
Stocks were expected to rally after the FED announcement and rally they did. The Dow went up 125 points just half an hour after Powell’s address and even though the S & P 500 and the Nasdaq both fell marginally, it was seen as a good day at the markets overall.
The big question is what the mentality of investors will be as we enter a protracted period of interest rates at near zero. It is unlikely that people will hold on to their money, which means it will either be spent or held in assets. So what assets will pull in investors, especially new app investors who are dying to hold something with little, to no knowledge of investing?
The case for Bitcoin
Aside from market sharks that can move markets to their will at any time, there is a new breed of investor who can influence price moves significantly. Investment apps that appeal to a much younger generation than the average investor have brought a whole host of young investors into the game. Apps like these spread the gospel of fractional shares in a way that wasn’t being done before.
Young people who think Elon Musk is cool are going to be thrilled by the idea of owning Tesla stock, without having to pay $440 a share for it. Similarly, young people who use Amazon and follow Jeff Bezos want to channel that winning spirit from him by buying the stock without having to pay $3,000 a share.
Aside from fractional shares, trading options has also become popular, but the risks have been laid bare. Watching your money go up in flames in a matter of minutes and stories about app investing related suicides can take a toll on fickle young people. So the danger there has become more pronounced over time to many people, and this makes crypto an attractive option.
Those who have been fed stories about the volatility danger with Bitcoin have probably seen friends lose stashes of cash on apps over the last few months. Bitcoin on the other hand has held above the $9,000 mark since June and has bounced back admirably, soon after every dip. It also helps that there has been a lot of buzz around BTC since the highs of 2017.
Aside from exuberant new young investors, some seasoned investors are looking for hedges while others look for lifeboats at a time of great uncertainty. Such investors will stick to the rules and go by the factors that influence the choice of a good investment.
These factors are;
1. Investable funds available
No one is going to put funds that belong on the expenses column on the line, so it’s all about the disposables. The amount one is willing to invest will determine what investment vehicle they choose. A big investor with money to blow might look at real estate, stocks among others.
Accumulating cryptos is very attractive as well because of the gains that can be made within a short time. It’s also particularly attractive because of the ‘lifeboat’ tag BTC is beginning to gain. Medium and small investors love the accessibility of Bitcoin in micro parts, and how easy it is to liquidate.
BTC, therefore, passes the available funds question
If investing was a vehicle, time would be the gas it runs on. Unless you’re gambling, investing is an accumulation process. Granted, slumps do occur but if all growth factors remain constant for certain periods, your money grows. We can all agree that BTC is no longer the budding $240 youngster it was this time back in 2015.
Stock market proponents who also happen to be anti-decentralization will point at the stock market gains despite the pandemic. Crypto enthusiasts will point to BTC outperforming even the tech stocks by being up 60% as per last month.
Despite occasional turbulence, BTC has managed to stand the test of time
3. Investment Yield intentions
BTC’s growth over the years is well documented if you are in for the long haul. Short term traders can also benefit from the digital asset’s swings. The long term argument can be made with other assets like stocks and real estate as well, but BTC has steadily beaten those over the years.
Yet another tick for Bitcoin
In summary, very low-interest rates in the USA for a protracted period could likely fire up crypto. Even diehard stock market investors might as well look to hold some of their value in BTC or ETH. Other assets like gold may be seen as good destinations for capital but overall, there are good reasons to look at decentralized markets in this period.