- Following the announcement of tax cuts and more debt rises to lessen the effects of a potential economic recession, the British pound set a record low versus the U.S. dollar on September 26.
- On Wednesday, the Bank of England (BOE) announced that it will temporarily begin purchasing long-term bonds and halt its previous quantitative tightening initiatives.
- BTC/GBP trading volume increased over 1,200% on September 26 as aggressive Bitcoin purchases were made by holders of British pounds.
- This fall may be attributed to dissatisfaction with the new policies of newly appointed Prime Minister Liz Truss as well as the strengthening of the dollar against other major currencies as a result of rising interest rates.
A brief history of the British Pound(GBP):
In 1971, the British pound officially lost its ability to be converted into gold or its equivalent, and that is how we currently know it. Since that time, there hasn’t been a fixed valuation for the money the Bank of England has issued. The British pound had its all-time low on September 16, 1992. It subsequently came to be known as “Black Wednesday.”
The usually steady pound declined 4.8% in value against the dollar, essentially keeping the United Kingdom out of the newly established European Exchange Rate Mechanism (ERM). The nation entered the ERM in an effort to help the integration of the economies of Europe, but it effectively broke its commitment to the ERM’s rules.
What might be causing this decline?
The United Kingdom has a new government after Boris Johnson resigned amid a scandal. When there is no national election in the UK, the next Prime Minister is normally chosen through a leadership election within the dominant party (in this case, the Conservatives). The Conservative Party’s leadership election was held among Conservative Party members, who are often wealthier, older, and more anti-welfare and pro-free-market than the ordinary British citizen. But the essential fact is that a large number of them prefer lower taxes while being wealthier than the average person. The candidate who wanted to keep taxes higher because we are in an economic crisis and need the money (Rishi Sunak) lost to Liz Truss, the new UK Prime Minister.
Rishi Sunak, who advocated for higher taxes because the country is in financial trouble and needs the money, lost the election to Liz Truss, the new UK prime minister, who recently enacted the biggest tax cut since Thatcher, blowing a huge hole in the country’s budget for the foreseeable future and defying the Bank of England, business leaders, and the opposition.
The market has reacted by losing faith in the UK economy, which was already suffering from inflation, an energy crisis, the fallout from COVID, and the impact of Brexit. Although the dollar is now quite strong, you can compare the GBP to the RUB, HKD, or another currency to get a sense of how the markets currently see the British economy.
British investors turned to Bitcoin:
In terms of relevance, very few assets can rival fiat money. Taking jewellery and non-financial assets out of the equation, gold has a worth of almost $6 trillion, making it a strong competitor.Investors appear to be turning to Bitcoin (BTC) to maintain stability as the British pound continues to decline versus the raging US dollar.
As owners of British pounds rushed to buy Bitcoin on September 26, the volume of trade BTC/GBP increased by nearly 1,200%. This is in stark contrast to the BTC/USD pair, which has seen a summer of relatively stagnant trade volume on centralized exchanges. There was a volume spike into ETH/GBP pairs as well.
Data reveals that major fiat currencies, excluding the pound, have seen a surge in trade volume with Bitcoin. As an example, volume against the Euro has increased 84.84% during the past 30 days. The USD/BTC pair’s volume increased by 66.52% in 30 days at the same time.
Concluding Thoughts:
It is difficult to gauge the British pound’s importance to cryptocurrencies. Although the direct effect on Bitcoin trading appears to be little, the fact that the U.S. dollar has dropped to an all-time low versus the oldest fiat currency may have major implications for cryptocurrencies. The advantages of a decentralized form of money may become apparent if the general public understands that their savings and assets are being devalued more aggressively by central bank stimulus measures
