Bitcoin on the Rise as Brexit Moves CloserOctober 15, 2019
One of the biggest financial and geopolitical events in recent history is slowly moving closer to reality. This is, of course, Brexit and with it, all implied and unknown elements it might bring. The uncertainty it projects onto the world’s stage is massive, along with its shadow that in some minds could kick start another global recession.
However, it is not strange to observe that it also has an impact on bitcoin and its price. Furthermore, the same trend is gaining momentum as the possibility of a no-deal Brexit becomes an evermore likely alternative. If this does happen, what are the ramifications for the bitcoin network. Also, if the same scenario does not occur, will BTC price still be impacted and if yes, in what way?
On Monday, bitcoin was moving up in terms of price just as the UK pound got a pullback from the sharp gains it attained several days ago. This coincided with the news from the chief EU Brexit negotiator Michel Bernier. He said that the plan of the UK Prime Minister Boris Johnson is simply too complicated for the October 31 event. Johnson and some others in the UK government tried to present the new plan as a way out and way from a hard Brexit, which was something that the market wanted to hear desperately. Naturally, the statement from the EU side quickly killed off the enthusiasm and the outlook was once more gloom and doom.
The markets felt the same thing on Monday. With the drop in the pound, the UK stocks also lost their value and this is not expected. Usually, when pound slides down, the FTSE 100 tends to show a jump in the value of stocks. This time, however, the outlook was down for both entities and they dropped in tandem. Analysts stated that this is most likely a part of the process where investors are no pulling out their money from neither pound or the FTSE 100 but the UK as a whole. This was all happening in the expectation of the first PM’s Queen Speech. This was, in turn, explained as a somber awakening and a reality check for all Brexit bulls.
The notion that the short bull run the GBP had was anything more than a shorting fluke is completely unrealistic. In an age where esports are becoming as popular as the traditional ones, the idea that a lack of information can dictate this level of short-sightedness is appalling. Analysts explained: the gains that GBP had been produced by meaningful short speculative positioning. It was exaggerating the overall impact of the news flow at that moment.
The market was getting ahead of itself and this led to a lot of vulnerability to a sharp decline. Now, a sell-off is in the cards if the talks between the EU and the UK breaks down once more, which is very likely in the near future. At least, the possibility of the breakdown is likely and thus, the threat is real as well. The market knows this and the citizens know it as well. This makes the entire setup very delicate and one that could slide further without possible government intervention. Without it, a run on the banks seems like one additional apocalyptic scenario the people of the UK have to take into their considerations.
Bitcoin and GBP Correlation
The gains of bitcoin are currently coinciding with the loses GBP has against the US dollar. This was the trend for the last 7 days and it appears that it will continue. The correlation had it extraordinary moments when pairs surged by over four percent on the same day. Now, the crypto community once more is hoping that investors are hedging against Brexit using cryptocurrencies.
A great example of this was seen in China when the central government devalued yuan several times in 2015. Yet, this is not something many are going behind as a certain reason for this connection. In other words, the concept is a wish many want to see in reality. However, the correlation is not something anyone can deny and it will be interesting to see what will take place in the days to come.
Need for a Deal
Right now, there is a singular path out of the crisis and the insane levels of insecurity it would bring. A deal that would be approved by the EU summit that takes place on 17-18 October could do this. Then, the same deal would need to be passed in an extraordinary UK parliament session on 19 October. With this trajectory, the entire setup can be completely avoided. Without it, there is no telling what will come at the end of October.
The Prime Minister is adamant that on November 1, the UK will no longer be in the EU, one way or the other. However, it is far from clear that this will take place and many problems remain even if the UK does leave the block. All of those need to be solved inside of a deal – any kind of a deal.
UK Economic Impact
No matter how the Brexit takes place, its toll on the UK economy will be crippling. Estimates show that a hard Brexit, which would include no deal at the first moment of exit, would restrict the GDP of the country by up to 7 percent. In that setup, the process of investors parking their funds into bonds, stocks, and other hedging sets seems a much better alternative to the pound.
Still, is bitcoin one of those hedging mechanisms? For some, it most definitely is, but there is no way of knowing how far will this go in those crucial months after Brexit. Even if many investors really decided to use BTC for this purpose, chances are they will move back their funds into fiat currency or some other asset quickly enough. In that case, while a rise in the price would be a logical thing to expect, the chance of that making any difference, in the long run, is minuscule.