No, I’m not talking about DeFi yield farming. What I’m referring to are the good old government bonds yield. And that one is becoming hard to find...
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In search of yield…
You might not know that, but 30 years ago the US used to pay a 9% yield on your 10-year Treasury bonds. These days we are closer to 0.75%...
So the 9% days are gone and it makes handling your cash reserves much more complicated than it used to.
Back in the days it was a no brainer to buy safe government bonds that would yield you good returns and provide a cash cushion to your more “risky” investments.
Warren Buffet used this strategy to milk the float of the Berkshire insurance businesses.
Trend following funds could also rely on bond yields to smooth their returns back in the 80s and 90s.
But things have changed. The game is more difficult now. You are forced to take more risk with your cash these days unless you are fine with its purchasing powder melting away.
A lot of people are wondering if the US 10-year treasury yield will ever go negative. If you look at what happens in the rest of the world that seems totally possible.
Check it out.
Already 12 countries are issuing 10-year bonds with negative yields. Half of the world’s governments are issuing 10-years bonds with yields below 1.4%.
You need to go pretty far down the list to get a 5% yield. That’s if you buy debt from India, Mexico, Russia or Brazil.
If you feel like getting big yields you’ll need to bet on (not displayed on the graph):
Argentina 52%
Venezuela 47%
Zambia 33%
But you might as well invest in DeFi with less risk…
In a world where owning government debt doesn’t yield you much returns you are better off parking your cash in Bitcoin to sleep better at night.
Buffet dumps financials
One of the symptoms of this low yield environment is that it is hard for financial institutions to generate safe and steady returns.
Warren Buffet is no fool and he has a good understanding of those difficulties. That’s another reason for him to unwind his holdings of financial stocks and to focus instead on businesses in the hard money space.
After Barrick Gold, what could Buffet invest into next:
Tech stocks, but that’s not really a value investing play.
Gold, that could be considered a value bet but gold won’t give you any dividends.
Bitcoin, won’t give you any dividends either but by many metrics it is undervalued and of all hard assets it has the highest potential for growth.
Obviously I don’t think Warren Buffet will become a hodler. But we have seen with Microstrategy that companies are starting to put Bitcoin on their balance sheet.
So Berkshire Hathaway could end up owning Bitcoin indirectly by owning businesses that hold Bitcoin.
Or simply Warren Buffet could invest in a Bitcoin mining business.
I’m not holding my breath for that, but things are changing.
DeFi…
If you read this Forbes article about YFI you might think that DeFi is eating crypto… but past the headline the numbers are telling a much more moderate story.
For sure the YFI token is worth more than one Bitcoin. But in case that wasn’t completely obvious it is a rather meaningless statement if you don’t consider the supply.
To get some context just look at where YFI stands in terms of market capitalization.
Yea, it hasn’t broken the $1 billion mark yet. In fact, despite one YFI being worth more than one BTC, its total market value is very similar to other DeFi tokens such as LEND and UMA.
So far the only DeFi project that has made it high on the crypto market cap ranking is Chainlink with a $4.5 billion market value.
Even if Arthur Hayes prediction that YFI could reach $100,000 per coin comes true, that would only give us a market cap of $3 billion since the supply is limited to 30,000 tokens…
For sure DeFi is an exciting new space very similar to what ICOs were during the last cycle. Some nice projects might come out of it but it’s way too early to reach any conclusion… so trade with caution.
Pay your taxes with Bitcoin
Here is something you might have heard your grandmother say, or maybe some financial news commentator:
“Bitcoin is worthless because you can’t pay your taxes with it.”
In that case then I suppose that in the Canton of Zug in Switzerland Bitcoin is worth something. Starting next year you will be able to pay your taxes using Bitcoin there.
My understanding of the process is that the local tax authority won’t hold the BTC they receive. Instead they will immediately convert them in Swiss Franc.
So we are not there yet but this is going in the right direction.
If you have learned something don’t forget to subscribe to the newsletter to get my insights directly in your inbox.
Cheers,
Nick
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Follow Ecoinometrics on Twitter at https://twitter.com/ecoinometrics.
Done? That’s great! Thank you and enjoy.