29 May 2018
Product in the Spotlight: Bitcoin Pound
Bitcoin and the Great British Pound (GBP) have shown very little or inverse correlation in the past. But with Brexit negotiations underway, the future is uncertain for the British economy. As part of the ‘Single Market’, UK businesses have unfettered access to 500 million consumers in all states, but this will change dampening economic growth for some time. New negotiations regarding tariffs, quotas and other trade and non-trade barriers are already ongoing. In the event of a slow economy, the Bank of England will have to inject more money into the system and manage interest rates to induce growth. In contrast, the supply of Bitcoin remains fixed. Therefore, amidst all uncertainties and political instability, Bitcoin could prove to be a ‘safe-haven’ asset, provided it gains against the GBP – but this doesn’t mean that Bitcoin volatility and the unpredictable nature of cryptocurrencies should be ignored.
Bitcoin Surge Example:When Britain voted to exit the European Union, the price of Bitcoin surged. The GBP dropped around 10% against the US dollar, reaching a 30-year low as the global currency markets reacted to the news. But the price of Bitcoin continued to rise. In early June 2016, Bitcoin touched a figure of $719, a two-year high, thanks to Brexit announcements. Even opinion polls were causing huge price fluctuations for Bitcoin.
Factors Affecting the Sterling Pound in Bitcoin/Pound Pair Trading
- Inflation: CPI is compiled and released by the Office of National Statistics, which calculates the change in prices of goods and services purchased by consumers in a given period. This report is used by the BOE to set its inflation target. Based on this, the central bank formulates its monetary policy. Other reports to consider are the Producer’s Price Index (PPI), which gives inflationary changes at the raw material level.
- Monetary Policy: The Bank of England has a mandate to promote monetary stability, for which it regulates interest rates. Whenever it feels that the inflation rates might affect GBP stability, it adjusts the interest rates. The rate decisions are determined by the Monetary Policy Committee and can be found on the website of the BOE. Higher interest rates would have a positive effect on the GBP.
- Market Sentiment: The Nationwide Consumer Confidence Index (NCCI) reports detect shifting trends in the underlying economy. This report gives traders an idea about the direction the UK economy is taking. This survey is an important tool for fundamental traders.
- Balance of Payment: Trade balance reports come out monthly and current account details are released quarterly. If imports are greater than exports, the value of GBP will diminish.
- GDP Figures: The reports to look out for include the preliminary GDP report, revised GDP report and the final report. A lot of action is seen in the markets even before the final report is released, as traders gain certain insights from the preliminary reports. Other figures to look for are the manufacturing PMI and services PMI, which gives an idea about retail sales. Consumers are the key drivers of any economy.