The British Pound (GBP), posted a plunge of historic proportions on Monday, hitting very low all on Monday as investors panic because of the Truss government’s spending and tax cut plans, which risks hurting the country’s finances.
And the cryptocurrency market is echoing that the market, investors, and British citizens no longer trust the Pound.
Investors flee the GBP and take refuge in Bitcoin
In fact, the fall of the Pound had the collateral effect of generating a sharp increase in trading volumes between the Pound Sterling and Bitcoin.
Specifically, the trading volume in the BTC / GBP pair across eight major global crypto exchanges hit an all-time high of 846 million pounds on Monday, according to a report from data firm Kaiko Research.
This is more than 15 times the average of about 54 million pounds per day so far in 2022, the report said.
In other words, the data suggests that many investors are fleeing the British pound for Bitcoin, a trend no doubt driven primarily by British citizens’ fear that their savings will lose value as they fall their national currency.
In this regard, James Butterfill, head of research at cryptocurrency firm CoinShares, clarified that “there is a strong correlation between bitcoin volume growth and political/monetary instability.”
The analyst pointed out that volume spikes had already occurred against other troubled currencies, such as the Russian ruble and the Ukrainian hryvnia. However, the magnitude of the increase in BTC/GBP volumes on Monday is much larger, he said.
Crypto-assets are a risky investment.
Arbitrage of opportunistic traders: Another explanation for the explosion of BTC/GBP volumes
Kaiko analysts meanwhile offered another explanation in an email to NDTV, explaining that “opportunistic crypto traders have flocked to cryptocurrency exchanges that offer BTC-GBP to try to profit, through arbitrage, from any devaluation of bitcoin in major currencies fiat”.
Crypto platform Bitfinex confirmed a “significant spike” in volume for the bitcoin-sterling pair on Monday, which it said “underlines the ability of the largest cryptocurrency to benefit from the apparent fragility of fiat currencies”.
It should be noted that this volume peak had no major price consequences for Bitcoin per Pound. In fact, after volatility in both directions on Monday and Tuesday, BTC/GBP is currently at 17,900 GBP, almost unchanged from the start of the week.
Finally, remember that the British Pound against the Dollar (GBP/USD) hit a historic low of 1.0384 on Monday, but has since rebounded strongly, to around 1.08 at the time of writing. Cheap buying, as well as verbal interventions from the Bank of England, managed to stop the hemorrhage on the currency pair for now.
Do you want to learn more about currencies to better understand their impact on cryptocurrencies? Check out our guide to forex trading!