After the global financial crisis in 2008, negative interest rates have been widely accepted by central banks.

Nimbus Core
Nov 5 · 4 min read

Expansionary monetary policy stimulates business activity in short-term perspective and positively affects export of goods. But excessive rate lowering and quantitative easing policies may provoke countries to suppress international trading.

The global stock of negative-yielding debt is now in excess of $17 trillion as rising market volatility lends extra force and denies standard financial instruments.

And the tendency seems to hold as Federal Reserve cuts rates down to 1.75% on October 30. With rates lower than 2 per cent, profits from zero-risk tool doesn’t even cover inflation. IN this case, many investors will turn to much profitable alternative solutions.

Era of negative interest

Negative interest rate policy has been pushed throughout the years by a great number of central banks around the world. It states that private financial institutions are obliged to pay fees for the containment of excessive monetary resource.

The National Bank of Denmark became a pioneer and introduced negative rates in July 2012 during the european debt crisis. Two years later European Central Bank went along in order to prevent deflation. Today, National Bank of Switzerland holds the record for world’s lowest interest rate — -0.75% annually.

In Feb 2015 Sweden lowered their reverse repurchase agreement rates down to -0.1%. Later that Fall, Norges Bank of Norway cut their interest rates to -0.25%.

In Mar 2016 negative rate policy was introduced in Hungary and Japan and resulted in -0.12% annual profits for government bond holders.

“You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States,” stated Alan Greenspan, former Federal Reserve Chairman, about the spread of negative rates in his CNBC interview.

One could legitimately ask: “Why would anybody lower their purchasing power?”. First of all, extremely low to negative interest rates are mostly established in countries with a developed economy. Such countries have served as investment magnets for decades and continue attracting new investors. However, these countries’ GDP growth rate has been unsatisfactory low for quite some time, with most standard expansionary monetary policy tools proven to be gradually losing their effectiveness.

Establishment of negative interest rates contains serious hazards. It can lead to massive cash outflow from banking system to high-risk investment spheres and result in a full-scale financial crisis. On the other hand, such rate policies prevent people from saving funds and can help stimulate the economy due to higher customer demands. Either way, low or negative interest rates are clear signs of an upcoming crisis. Ludwig von Mises said that cheap money policy only creates a boom in capital goods production; and such boom is always short-term. Negative interest rates is not the only instrument in the modern monetary regulators arsenal. Some practice quantitative easing, meaning that central banks simply intrude the open market to control the interest rates of government bonds.

Crypto assets and the rise of arbitrage trading

Arbitrage is a trading technique that profits by taking advantage of price differences in identical assets on different markets. Simply said, arbitrage trading is buying an asset cheaper on one market and selling it higher on the other market. Arbitrage provides a way to exploit market inefficiencies and a mechanism to ensure that substantial price deviations do not exist for long periods of time. And while it may seem a risk-free way to earn a living, any profitable opportunity in markets is often eliminated in a matter of microseconds, making it extremely difficult to profit for starting investors with simple technology. And Nimbus has a solution prepared for such investors. Avalon is our trading algorithm, a product of a proud and long-term partnership between Nimbus and Quadum. Constant updates are made to ensure that Avalon is capable of maintaining profitability even when managing large asset volumes.

Bitcoin Halving & Ethereum 2.0 bring new opportunities for the market

Excluding the possibilities at fintech market, there might be another opportunity on some crypto assets. May 2020 halving will reduce the new supply of Bitcoins by $63,000,000 per week and potentially causing the market cap to rise by trillions of dollars during the following years.

A major update on Ethereum network is scheduled to launch Feb 2020, and will definitely significantly change the positions on this market. With stakes on further decentralization, Ethereum will surely gain volumes and attract large investments, which will result in overall market cap rising.

Conclusion

Nimbus Senior Advisor David Mazaheri states that recession is unstoppable by current policies:

“The rate cuts starting in September 2007, January 2001, and June 1989 did not prevent recessions that started in December 2007, March 2001, and July 1990. The lesson: easy money is not a panacea. Once the cycle has turned, the Fed cannot stop a recession, try as they might.”

What’s more important, central banks are not going to change the policies in the nearest future: 2019 global growth is back to its slowest pace since the 2008–2009 financial crisis, with GDP growth at 3.0 per cent.

At the same time, decentralized services offer much more attractive interest rates. Nimbus Core offers users access to a financial ecosystem — a marketplace of stand-alone applications soldered to a modular basis, that include various solutions, with profits up to 15% monthly on BTC, ETH, USDT.

Major cryptocurrencies have yet another chance to effectively prove and strengthen their real asset worth. And rise in the demand for these assets will stimulate much broader markets and positively affect FinTech market. While we’re waiting for Spring activity boom, Nimbus aims to continue implementing technological advancements that provide necessary functionality for deeper integration into ecosystem; and Quadum keeps developing Avalon to guarantee its effectiveness and provide exceeding return stream for each individual investor.

Nimbus Core
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