Digital Currency Revolution Series: Bitcoin's performance in Brexit Crunch

In this write-up, we run you through the Grayscale’s research report on the reminiscences of Bitcoin Boom-Cycle and some geopolitical issues in Europe.

Well, before we proceed further, let’s just quickly glance at the prevailing uptrend of BTCUSD in 2019 so far (120%) and also be noted that the sharp rallies from the July 2013 lows of just $1 to the all-time highs of $19,891 levels (i.e. 19,89,000%) which was commendable in just 4-5 years. It is explicitly illustrated about this perplexity referring to a concept called “booming cycle” of the price of BTCUSD back in our December 2017 post. To study the price action of this pioneer cryptocurrency and forecasting, let’s first empathize the background.

The concept of bitcoin was invented during financial crises that were becoming more prevalent and global, especially during the 2008 recession. 

The 1st chart from Goldman Sachs identifies a long list of large drawdowns across the US, European, and Asian equity markets over the last sixty years, showing just how devastating their effects can be. For example, during the Global Financial Crisis (GFC) between October 2007 and March 2009, the S&P 500 and several of its global equity counterparts lost more than half of their value, erasing decades of wealth creation and challenging our understanding of market efficiency and systemic risk. 

Ever since the Brexit referendum vote, both sterling and euro have been vulnerable and continued to plunge constantly through the end of 2016, as Eurozone policymakers and investors were seized with an unprecedented economic encounter and experimentation, the ways it might unfold. 

During such knee-jerk scenario, one-day global selloff, Bitcoin was a top performing asset, boasting a return of 7.1% on strong volume, versus an average of -2.1% for the rest of the group. Once again, it has been that Bitcoin outperforming other perceived safe-haven asset classes including bullion, the Japanese yen (JPY), and treasury bonds across the globe. Please be noted that the bitcoin’s response to the dollar in comparison with the GBPUSD and EURUSD, in both the cases BTCUSD has been inversely proportionate to GBPUSD and EURUSD (refer 2nd, 3rd and 4th charts).

Three years later, Members of Parliament (MPs) in the region are still negotiating the withdrawal agreement detailing when, how, and under what conditions the UK will leave the EU. After failing to gain approval three separate times in the first quarter of 2019, the deadline for the withdrawal deal has been extended to October 31, 2019. 

Brexit uncertainty has probably increased somewhat, as Boris Johnson seems likely to become the new PM. In our view, the BoE will continue its guidance of limited and gradual hikes, even if no hike seems likely at present.

With so many details of the transition plan still unknown, global investors might consider allocating a portion of their investable assets to Bitcoin to help protect against contagion stemming from the Eurozone, the world’s second-largest economy. 

Bitcoin price might have been plunged from the all-time highs of $19k. We still, reiterate, it seems that any bearish swings may create yet another booming cycle. Courtesy: Grayscale

Currency Strength Index: FxWirePro's hourly BTC is flashing at 89 (bullish), hourly USD spot index is also inching at 84 levels (which is bullish) while articulating (at 13:19 GMT). 

For more details on the index, please refer below weblink:

By Niranjan Patil
  • Market Data

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