Tech

Bitcoin Hedge Attractiveness Increases for Investors Hit by Pound Fiasco as Trading Volume Soars


As a developed country, you know your currency is in a worrisome state as investors start to hedge against Bitcoin.

After British Prime Minister Liz Truss unleashed her small budget on September 23, spooking financial markets, a section of investors moved away from the pound and towards cryptocurrencies.

Trading volume between Bitcoin and the pound rose 233% in September overall from the previous month, according to data from research firm CryptoCompare, while trading between the cryptocurrency and a similarly valued euro also increased by 68%.

“This is the first time we have seen such a large increase in volume for a developed country currency,” said Ed Hindi, chief investment officer at Tyr Capital.

On the Monday following Friday’s budget shock, when the pound fell to an all-time low against the dollar, trading volume between the pound and Bitcoin spiked to a record high. daily is 846 million GBP (about 7,905 crore), according to market data firm Kaiko Research.

Meanwhile, Bitcoin’s volatility is near an all-year low. By contrast, volatility in safe-haven US bonds is near its highest level since March 2020, as measured by the ICE BofAML US Bond Market Options Volatility Estimates Index.

In fact, in the past month of market auctions, U.S. Treasuries have fluctuated as much or more than Bitcoin, according to Refinitiv data. Both Bitcoin and the US 10-year bond are currently hovering around 21, according to a measure of volatility conducted, while at the beginning of September, Bitcoin’s volatility was more than double that of bonds, at 65 versus 31.

Flight out of crisis

In Bitcoin’s infancy, a key selling point was its ability to hedge against currency slippage and inflation. That story begins to unravel as more institutional adoption means more traded cryptocurrencies in twists and turns with the traditional risk-on corners of financial markets.

So are investors ready to bet on Bitcoin as a hedge again?

The pound volume echoes similar instances of investors jumping into Bitcoin as fiat comes under pressure, including in Russia and Ukraine this year.

Experts have pointed out that the relative ease for small investors buying Bitcoin, rather than entering the gold or forex markets, is a factor behind this trend.

Ben McMillan, chief investment officer at IDX Digital Assets, said: “Bitcoin has not always been seen as a ‘flight to safety’ as a ‘escape from the crisis’ asset, although GBP is not as weak as the ruble. .

Some market participants say the outflow from the pound is also driven by savvy traders taking advantage of arbitrage opportunities from changes in Bitcoin’s price.

One Bitcoin bought nearly 19,000 GBP (approximately Rs 17,910.00) on September 27, its highest level in the past six weeks, compared with around GBP 17,000 (approximately Rs 16,02,700) on October 24.

Bitcoin Price

Bitcoin is not a safe bet. Clear.

The world’s largest cryptocurrency is down more than 58% this year, while the traditional rates of safety for gold and US bonds are down around 10% and 15%, respectively, the pound has lost 16% and the S&P 500 down more than 21%.

However, Bitcoin has stabilized somewhat in recent weeks, hovering around $19,000 (about Rs 15,72,000).

The volume of transactions between Bitcoin and the British pound has now fallen back to levels around pre-small-budget levels, CryptoCompare analysts say, with the pound recovering, CryptoCompare analysts say. Britain after the UK government reversed its financial plans.

Some crypto watchers say that September’s rise is nonetheless a reflection of Bitcoin’s enduring appeal as an asset outside of mainstream finance.

“The massive outflows from GBP into BTC imply that investors see the value of using hard-capped, incorruptible, decentralized money as an alternative to BTC,” said researchers at CoinShares. currencies backed by central banks and governments”.

© Thomson Reuters 2022


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