(Our Weekly Analysis of the Wild World of Cryptocurrency)
When investors start backing bitcoin, you know your currency is on point as a developed nation.
Many investors have left the British Pound and moved into cryptocurrency after British Prime Minister Liz Truss made a brief announcement of her mini-budget on September 23rd.
According to CriptoCompare, trading volume between bitcoin and the euro has seen a jump of 68% in September. The 233% increase in pound-bitcoin trading volume is also interesting.
“This is the first time we’ve seen such a significant increase in (bitcoin) volume for an established country currency,” said Ed Hindi, chief investment officer at Tire Capital.
After Friday’s Brexit announcement, which saw the pound fall to an all-time low against the dollar, trading volume between sterling and bitcoin rose to a daily record of 846 million pounds.
But Bitcoin’s volatility is also near its lowest point for the year. In contrast, volatility in U.S. bonds – which investors turn to as a safe-haven from riskier assets – is at its highest level since March 2020, as measured by the ICE BofAML U.S. Bond Options Estimates Index.
If a volatility index were to be calculated for bitcoin and US Treasuries, bitcoin’s would be nearly double that of the 10-year note. This is because bitcoin has been as or more volatile than Treasury securities during market jitters. Today, both Bitcoin and the 10-year note can be purchased at 16 on the NVolatility index.
‘Escape from the crisis’
In bitcoin’s infancy, a key selling point was its potential protection against currency depreciation and inflation. That narrative has begun to unravel as greater institutional adoption has meant that cryptocurrencies are trading more in line with the traditional risky parts of financial markets.
So, are investors ready to bet on bitcoin again as a hedge?
The pound’s volume reflects similar examples of investors jumping into bitcoin when fiat money came under pressure, including in Russia and Ukraine this year.
Experts have pointed to the comparative ease for retail investors to buy bitcoin, rather than entering the gold or currency markets, as one factor behind the trend.
“Bitcoin has always been less of a ‘safe haven’ asset than a ‘crisis escape’ asset, although the GBP is nowhere near as weak as the ruble,” added Ben McMillan, chief investment officer at IDX Digital Assets.
Some market participants said sterling flows were also driven by savvy traders taking advantage of arbitrage opportunities due to changes in the price of bitcoin.
One bitcoin bought nearly £19,000 on September 27, the highest level in six weeks, compared to around £17,000 on October 24.
BITCOIN PRICE
Bitcoin is not a safe bet. clear.
The world’s largest cryptocurrency is down over 58% this year, while the traditional safety plays of gold and US bonds are down about 10% and 15%, respectively, sterling has lost 16% and the S&P 500 is down more than 21%.
Bitcoin has stabilized somewhat in recent weeks, hovering around the $19,000 mark.
Trading volumes between bitcoin and sterling have now fallen to pre-mini-budget levels, analysts at CriptoCompare said, with the pound recovering after the UK government scrapped its fiscal plans.
Some cryptocurrency watchers say September’s spike was, after all, a reflection of bitcoin’s enduring appeal as an asset outside of mainstream finance.
“Large outflows from GBP to BTC imply that investors see the value of owning a hard-capped, incorruptible, decentralized money as an alternative to currencies backed by central banks and governments,” CoinShares researchers said.
($1 = £0.8856)