The British Pound (GBP), posted a plunge of historic proportions on Monday, hitting an all-time low on Monday as investors panicked over the Truss government’s spending and tax cut plans, which risk hurting the Finances of the country.
And the fact that the market, investors, and British citizens no longer trust the Pound is echoed in the cryptocurrency market.
Investors flee the GBP and take refuge in Bitcoin
Indeed, the collapse of the Pound had the collateral consequence of generating a sharp increase in trading volumes between the Pound Sterling and Bitcoin.
Specifically, 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 volume of around 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 fueled largely by British citizens’ fear that their savings will lose value as their national currency collapses.
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 taken place against other troubled currencies, such as the Russian ruble and the Ukrainian hryvnia. However, the magnitude of the rise in BTC/GBP volumes on Monday is much larger, he pointed out.
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 offering BTC-GBP to try to profit, via arbitrage, from any misvaluation of bitcoin in major fiat currencies”.
Crypto platform Bitfinex confirmed a “significant spike” in volume for the bitcoin-sterling pair on Monday, which “underscores the potential of the largest cryptocurrency to benefit from an apparent fragility of fiat currencies” according to her.
It should be noted that this peak in volume for Bitcoin against the Pound did not have any major consequences on prices. Indeed, after volatility in both directions on Monday and Tuesday, BTC/GBP currently sits at 17,900 GBP, virtually 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 posted a strong rebound, to around 1.08 at the time of writing. Buying on the cheap, as well as verbal interventions from the Bank of England, have indeed managed to stop the bleeding on the currency pair for the moment.