British Economist Worked Out 57% Bitcoin Interest Rate, Ahead of its TimeEven before bitcoin was invented British economist John Maynard Keynes had managed to work out the interest rate of the cryptocurrency: 57 percent.
Born on the 5th June, 1883, in Cambridge, England, into a well-to-do academic family, Keynes lived through a turbulent period in British history. Having lived through the Boer War, both World Wars, and worldwide economic depression, he died on the 21st April, 1946. During his life, though, he achieved fame as the world’s foremost economist. His best-known work is The General Theory of Employment, Interest and Money, which was published in 1936, and became a benchmark for future economic thought.
How, though, does this relate to bitcoin? According to a report from Bloomberg Businessweek, Keynes was able to work out the rate of the currency being lent and borrowed if it were invented. It found that Italian academic Piero Sraffa put forward that every commodity has its own borrowing cost. Keynes subsequently borrowed this idea for his 1936 book.
For instance, if a person has 100 Singapore dollars and they sell those for 73 U.S. dollars on the 9th November, deposit the money into their account for 50 days until the 29th December, while buying more Singapore dollars through a forward contract for the 29th December, they will end up with 100.15 Singapore dollars, the report finds.
It says:
"Currency traders deal with implied interest rates all the time, [so] in 50 days, you effectively earned an annualized interest rate of 1.11 percent".
Pelham Smithers Associates then took the information from Sraffa and Keynes, and futures prices on Deribit, a European bitcoin futures and options exchange, to extract bitcoin interest rates. It determined it to be around 50 percent.
The report adds:
"Retracing that analysis, I compute that selling 1 bitcoin for $7,220 on Nov. 4 and simultaneously investing $7,235 ($7,220 plus Libor interest of $15) in a Dec. 29 futures contract would allow for nearly 1.1 bitcoin to be purchased. That’s an annualized interest rate of 57 percent.
These high rates represent extreme price volatility, Pelham Smithers suggests. Even though the currency has reached a new stage of maturity it still undergoes wide price swings. Last week, bitcoin rose to a new all-time high of $7,800 after Mike Belshe, BitGO CEO, announced that the planned SegWit2x upgrade had been suspended. Since then the digital currency has fallen below $7,000 to $6,888, according to CoinMarketCap.
Source:
https://www.cryptocoinsnews.com/british-economist-john-maynard-keynes-worked-out-57-bitcoin-interest-rate/
