Bill Gross: Bitcoin a protection against central banks?


Bill Gross believes that central banks’ low or negative rate policies pose a threat on capitalism and sees potential in cryptocurrency. Is Bitcoin a protection against central banks?  

5 October, AtoZForex – The emergence of cryptocurrencies, in particular, Bitcoin, may become an attractive tool for investors to guard themselves against central banks’ low and negative interest rate policies. According to Bill Gross, a manager of the $1.5 billion Janus Global Unconstrained Bond Fund.

The current monetary policies implemented by the Federal Reserve (Fed), Bank of Japan (BoJ) and the European Central Bank (ECB) interfere with historical business models that encourage savings, investment, and economic growth. Hence, investors start searching for more and more havens as they stop believing in the system.

The current system is challenged by Bitcoin

According to Bill Gross, the approach that central banks took to foster borrowing and economic expansion by easing monetary policies did not manage to facilitate sustainable growth. In contrast, it caused investors to turn to investments that are less risky but bring higher returns, like Bitcoin. In the search for more havens, Bill Gross stated that:

“Bitcoin and privately agreed upon blockchain technologies amongst a small set of global banks are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms.

Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged.”

See also: Chicago Fed Evans says rate hike is imminent

ECB Taper Tantrum is underway

Bill Gross added that ECB Taper Tantrum is underway, which is bearish for global bonds. Bloomberg has reported that the officials of ECB decided to curtail purchasing of bonds which has been running at €80 billion. It signals that the bank lessens efforts to foster the economy by implementing ultra-loose monetary policy.

Tapering is related to gradually reducing the amount of money that the Fed puts into the circulation. This system ensues from by the quantitative easing and aims to diminish the reliance of the economy on that money. But, if the central bank signals that it is planning to engage in tapering, panic can be caused. This panic is called a taper tantrum. 

Back in 2013, the US bond market was hit by taper tantrum as Ben Bernanke, the Fed chairman, signaled that the bank would cut purchasing of Treasuries and mortgage-backed securities. As a result, bond yields largely increased.

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