Opinion UK Political Chaos promises a Prolonged Crypto Winter

UK Political Chaos promises a Prolonged Crypto Winter

October 22, 2022

Last week saw a huge amount of turmoil on the UK political scene. Liz Truss, after only 45 days in the office as the Prime Minister, buckled under pressure and decided to quit as the leader of the Tory party and the head of the UK government. This is the shortest period any PM has been in office since 1721 when the present parliamentary system began. The same record is not something Truss is likely very proud of nor is her track record anything aside from hugely destructive for both her party and the UK economy. 

The new Prime Minister is now going to be selected out of the ranks of the Tory party, while many other political entities in the UK are calling for a general election. While it seems that this will not take place, the very threat of further instability in this big European economy is generating a lot of worry in the international financial markets. The crypto markets did not have a better outlook when it comes to the UK and more importantly, the issues that the country is facing only add to overall issues on the macroeconomic front for the coming new year. Here, chances are that the present crypto winter will likely continue or even produce a new record value for the dropping crypto prices. Both scenarios, however, show that the prospects of a crypto spring are as far away as they were when the market first entered this period of negative turmoil and an overall drop in value.

Bitcoin Reaction

The biggest digital currency network and its BTC token lost some value during the previous week, with the Wednesday trading period taking the price by 2 percent. That coincides with many problems that the UK economy is facing, along with the issues of political instability. All of these factors are now working against the UK markets and the GBP, as well as keeping the pressure on the traditional markets. As these shake under pressure, the digital currencies will almost assuredly slide down as well, mirroring the market correlation as they did on several big occasions in the last few years. 

The most famous of those is the market crash of the early pandemic. Back in 2020, the markets dropped because of the clarity of public opinion that some form of global lockdown is imminent. However, the same correlation is still active and threatening to yet again devastate the cryptocurrency markets. The UK political crisis is now a catalyst that seems to be working in the same direction, but using overdrive speed. 

UK Pound

The British pound fell last week as well, but not just on the account of the political issues, but the sheer weight of a single dire economic fact. The UK economy is so flimsy that the inflation rate in September rose faster than anyone predicted. It also rose to a 40-year high point, going all the way back to the darkest days for the economy in the early 1980s. The crypto markets were not in a position to ignore these economic movements in one of the biggest economies in the world. 

That is why, besides BTC, ethereum also fell down by 1.6 percent while altcoins performed badly, apart from a few outlier examples that managed to gain some market traction. Even brand-new crypto enterprises that showed a lot of promise in the post-crash period did not manage to change the outlook of traders and investors, who are now clearly perceiving the digital currency domain as something on a precipice of an even bigger loss in value. 

Hard Winter

The UK economy is simply reflecting what many are now taking for granted – the world is entering a massive recession, which will be on the level of the 2008 crisis. The reasons for this are presently completely different than they were nearly 15 years ago, but the fallout will be just as drastic, at least according to the many financial experts following the movement of the market. Here, no matter how big and relevant the UK is, the US economy is both bigger and possible to sink or float much more than its national territory. 

After all, the very same thing happened during the crash of 2008 when the US breakdown slowly took the entire globe’s economy with it. Today, the situation is even more complicated and worrying than it was during the last crash. That stems from global climate change, the war in Ukraine, and the hostility between the US and China. When the energy crisis is added to that, there is a sense that no clear solutions are visible, even for relatively niche industries like esports, which require very little in terms of maintenance. More connected businesses, like heavy industries, for example, will suffer immensely if the new recession takes a grip on the global economy.

Wait and See

For the crypto market, the situation in the present cryptocurrency winter is very worrying but at least clear-cut. There will be no external salvation from a sudden stimulus package process that propped up the industry during the pandemic. When this happened, many US stimulus package checks quickly became crypto holdings. The same allowed the business of crypto trading to flourish and for both the prices and market capitalization to climb up drastically. In the near future, measured in months, the same cannot happen even theoretically. 

To curtail inflation, countries around the world, especially the UK and the US, will have to sacrifice economic growth. The same tradeoff will be very painful for the general public, but also mean a drop in interest in investing in cryptocurrencies, both from individuals and institutions. Yet, this is precisely the period when digital currency projects can invest in innovation and talent. The same process will generate better networks and better products. When these see the light of day, they will prop up the markets at some future point. But, that period will not happen soon, sadly for the investors and traders working in the markets.