[Ko Ran] Bitcoin now being tested in the era of zero interest rate
[Hot Crypt KO] March 16 was the beginning of a new week, with the market’s eyes falling on central banks in each country. The central banks have been called upon as relief pitchers as the global economy, triggered by the Covid-19, faces a likely recession. The question is whether their choices will deliver a save in the battle against Covid-19. #BOK holds emergency monetary committee meeting — is a big cut coming? After the U.S. Federal Reserve unexpectedly cut 0.5 percentage points from key interest rates on March 3, the Bank of Korea became busy. On the following day BOK Gov. Lee Ju-yeol held an emergency meeting. The next BOK’s monetary policy committee meeting was dated at April 9. The market started to speculate that the monetary policy committee will lower the key interest rate by 0.25 percentage points. The market also speculated that the BOK’s monetary policy committee meeting would be pushed out until after the government’s 11.7 trillion won ($9.4 billion) supplementary budget is passed by the National Assembly. However, the Fed suddenly announced an interest rate of zero on March 15. This prompted the market to expect the BOK would hold its own monetary policy committee meeting on either March 17 or March 18. A majority in the market also projected the BOK would cut the interest rate by 0.5 percentage points rather than the 0.25 percentage points. If so for the first time, Korea’s interest rates would be lowered to 0.75 percent. The BOK on Monday held its meeting and cut it to the historic low of 0.75 percent. It is venturing into new territory. Under the current law, an emergency monetary policy committee meeting can only be held following a request by a minimum of two of the committee members. Until now, there have been only two times that the BOK’s monetary policy committee has held a meeting outside its regular schedule. The first was in September 2001, when the BOK cut 0.5 percentage points on the key interest rates in response to the 9/11 terrorist attacks in the U.S. The second time was in October 2008, when the key interest rate was cut by 0.75 percentage points in response to the global financial crisis, which kicked off with the bankruptcy of Lehman Brothers. #‘No amount of money raining from the sky will cure this virus’ However, many of the experts doubt the lowering of interest rates will have a substantial economic impact. Unlike the financial crisis, some of the experts say boosting consumer confidence and fixing the outbreak-induced collapses in supply chains won’t be easy with cheaper interest rates. According to CNBC, Peter Boockvar, CIO at the Bleakley Advisory Group, said, “The Fed blasted its monetary bazooka for sure,” in regards to the interest rate cut. He then said, “This better work, because I don’t know what they have left and no amount of money raining from the sky will cure this virus.” The best economic stimulus solution at this point could be the preventive measures against the epidemic. The NYU professor Nouriel Roubini, in an interview with Germany’s Der Spiegel last month, said the current crisis is a “negative supply shock,” which will reduced growth and increase costs and inflation, adding that “you can’t fight [the outbreak] with monetary or fiscal policy.” He then said the global equities will “tank” by 30 to 40 percent this year. Ray Dalio, founder and chairman of Bridgewater Associates, also questioned the effect of the interest rate cuts in a recent posting on Linkedin. “Interest-rate cuts and increased liquidity won’t lead to any material pickup in buying and activity from people who don’t want to go out and buy, though they can goose risky asset prices a bit at the cost of bringing rates closer to hitting ground zero,” he said, adding that monetary authorities in Japan and Europe were out of gas. #The fate of bitcoin? Recently the correlation between bitcoin and S&P500 has been growing. Currently all economic systems are in crisis, and seeking gold in place of risker assets such as equities and redistributing to digital assets is meaningless. Investors for now will have to persevere through the fall until the crisis stabilizes. The question is: What then? Jean-Marie Mognetti, CEO of CoinShares, wrote on Live Bitcoin News, “We are seeing a global re-pricing of everything — from oil to stocks to bonds to treasuries, and yes, even bitcoin.” “The months and years ahead, as we look at a negative interest rate environment and significant levels of quantitative easing across the globe, will be bitcoin's true test,” she added. The current crisis serves as an opportunity for bitcoin to prove the value of its existence.