© Stocksak. FILEPHOTO: This illustration was taken January 6, 2020. It shows Bitcoin and pound banknotes. REUTERS/Dado Ruvic/File Photo
By Lisa Pauline Mattackal
(Stocksak). – You know your currency is in trouble when investors start to invest with bitcoin.
After Liz Truss, Britain’s brief Prime Minister, unleashed her minibudget on Sept. 23 and filled financial markets with dreadful news, a section investors fled the pound for the cryptocurrency.
According to CryptoCompare data, September saw a 233% increase in trading volumes between bitcoins and the pound, and 68% more trading between the cryptocurrency, and a similarly battered Euro.
“It was the first-ever time we’ve seen such an increase in (bitcoins) volumes for the currency a developed country,” stated Ed Hindi, chief investment officer at Tyr Capital.
According to Kaiko Research, trading volumes between sterling (and bitcoin) spiked to an all-time high of 846 million pounds ($955 millions) on Monday following Friday’s budget shock.
Bitcoin’s volatility is at its lowest level in over a year. The ICE (NYSE: BofAML U.S.) measures volatility in safe-haven U.S. bond. It is now at its highest level since March 2020. Bond Market Option Volatility Estimate Index.
According to Refinitiv data, U.S. Treasuries were more volatile than bitcoin over the past month due to market ructions. According to a measure called realized volatility, both bitcoin and the U.S. 10 year note hover at around 21. At the beginning of September, however, bitcoin volatility was more than twice that of the bond at 65 against 31.
( trading volume against the British pound https://graphics.reuters.com/FINTECH-CRYPTO/gkvlwmwnkpb/chart.png)
“FLIGHT FROM CRISIS”
Bitcoin’s initial appeal was its ability to protect against currency inflation and depreciation. This narrative began to unravel as more institutions adopted cryptocurrency, meaning that cryptocurrencies traded more in lockstep and with traditional risky areas of financial markets.
Investors are ready to bet again on bitcoin as a hedge.
The volumes of the pound echo similar instances of investors jumping into Bitcoin when fiat money was under pressure, even in Russia and Ukraine this past year.
Experts cited the relative ease for small investors to buy bitcoin rather than enter the gold or FX markets as one reason for the trend.
“Bitcoin has never been as important as ‘flight safety’ as an ‘flight from crise’ asset, even though GBP doesn’t have nearly as much value as the rouble,” stated Ben McMillan chief investment officer at IDX Digital Assets.
According to some market participants, the flow of sterling was also driven by smart traders who took advantage of arbitrage opportunities created by changes in bitcoin’s price.
One bitcoin purchased nearly 19,000 pounds on Sept. 27. This is the highest level in the past six weeks, compared to around 17,000 pounds on 24 Oct.
PRICE OF BITCOIN
Bitcoin is not a safe bet. Clearly.
The world’s biggest cryptocurrency has plunged more than 58% in 2018. While traditional safety play of gold and U.S. Bonds are down about 10%, 15% and 10% respectively, sterling has lost 16% while the has fallen more then 21%.
Bitcoin has stabilized slightly in recent weeks, but is still hovering around $19,000
The trading volumes between sterling and bitcoin have fallen back to the levels they were before the mini budget, CryptoCompare analysts stated. The pound gained ground after the UK government reversed their fiscal plans.
Some crypto watchers believe that the September surge was still a reflection bitcoin’s appeal as an asset outside of mainstream finance.
Researchers at CoinShares said that large outflows from GBP to BTC indicate that investors see the benefit of hard-capped, incorruptible and decentralized money instead of currencies backed by central bank governments.
($1 = 0.8856 pounds)