Trading volumes between the British pound and Bitcoin spiked to record highs this week as the fiat currency floundered following a major stimulus package, per market data from Kaiko Research.
Analysts at the research firm noted that on Monday, investors rushed to dump their sterling for Bitcoin, or profit from an arbitrage trade. During the scuffle, the British pound fell to a record low against the US Dollar after having plunged the prior Friday after the UK government announced unfunded tax cuts estimated to cost 45 billion pounds ($50 billion) by the year 2026/27.
Ray Dalio slams UK incompetence
Consequently, investors dumped the pound fearing that the UK government is trying to sell too much debt. Ray Dalio of Bridgewater associates lambasted the UK government for its failure to foresee the market reaction, noting it suggested ‘incompetence’.
The panic selling you are now seeing that is leading to the plunge of UK bonds, currency, and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand.
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GBP-BTC volumes spike
Meanwhile, bitcoin-sterling trading pairs across eight global exchanges surged to a record high of 846 million pounds ($920 million) on Monday, compared with an average of around 54.1 million pounds/day in 2022, according to Kaiko Research.
The surge was probably due to traders swapping sterling for bitcoin, said head of research at crypto firm CoinShares, James Butterfill.
“There is a high correlation to bitcoin volume growth and political/monetary instability,” he added.
The Coinshares head said volume spikes in other currencies such as the Russian ruble and Ukrainian hryvnia have happened before, but he’d never seen such big moves in the bitcoin-sterling pair’s volume.
Kaiko analyst Conor Ryder, said the data indicates crypto markets reacted to the volatility in fiat currencies. When sterling dropped on Sept. 26, “opportunistic investors rushed to crypto exchanges offering BTC-GBP to try and profit via arbitrage from any mispricing of bitcoin across the major fiat currencies,” he said in an email.
Bitcoin trades around $19,400 on Thursday and at 17,000 versus the British pound. The crypto hit a two-week high against the British pound on Tuesday.
Implications for increasing volumes
British pound weakness and increasing Bitcoin-Sterling volumes bode well for liquidity conditions in cryptocurrency markets. As the masses shift towards Bitcoin for fear of currency devaluation, liquidity conditions in the crypto market become healthy.
According to a fresh Finbold report, Brits have invested £31.795 billion ($34.7 billion) in the sector. The authors noted that 34% of the British population owns different forms of cryptocurrency, with Bitcoin accounting for the largest share.
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