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The pound sterling is experiencing severe turbulence. The dollar eats it all. Bitcoin is in a deep sleep. What a time to be alive! Things are moving and shaking in the financial world and the general population can’t do much but watch the show. And place their bets. The British people recently saw the pound sterling and the euro fall to historic lows against the dollar. A percentage of the population responded by acquiring bitcoin, the charts show.
Another important factor is that “the volatility of the British pound was highly unusual last week, creating opportunities and price differentials”. The currency crisis created potential opportunities, and UK traders appear to have taken advantage of that. As a reminder, the British pound had “a spirited week in the UK pending proposed and later waived tax cuts”. This is all according to The weekly update from Arcane Research.
In Bitcoinist’s first report about the situation, our sister site said:
The UK’s interest in Bitcoin (BTC) is set to grow “pretty fast” as fiat currency instability causes its flagship digital currency to resemble a stablecoin, analysts say.
One of several this week to highlight BTC’s attractiveness against the British pound, strategy advisor at financial firm VanEck Gabor Gurbacs came to that decision.
“Due to the instability of the pound,” Gurbacs warned, “the UK will turn orange very quickly.”
The last factor to analyze is this: “Most of the growth has been concentrated in increasing volumes on Bitfinex.” Why was that? Keep reading to find out.
By the numbers: Sterling’s busy week
The headline is this: The 7-day average of BTCGBP trading volume hit an all-time high this week. Also, unsurprisingly, “similar tendencies occurred in ETHGBP.” How high was the highest point ever? Back to the weekly update: “BTCGBP pairs saw trading volumes rise above 47,000 BTC last Monday, following growth in the latter parts of September.”
BTCGBP Trading Volume (7d Moving Average) | Source: The Weekly Update
As for the reason for sterling’s moves to bitcoin, the analysts at Arcane Research blame the market maker’s rebalancing. Although they also acknowledge that bitcoin is “gaining spiritual share amid waning confidence in the British pound.”
Something similar happened with the Russian ruble at the beginning of the conflict with Ukraine. At the time, our sister site Bitcoinist reported:
“The new all-time high on the BTCRUB pair is the result of a fall of more than 50% in the Russian ruble against the US dollar since the beginning of the year. As a global reserve currency, most financial assets are priced in USD.”
Will the pound sterling recover as quickly as the ruble? Or will the dollar continue to dominate for the foreseeable future?
BTC price chart for 10/05/2022 on Gemini | Source: BTC/GBP on TradingView.com
Why was most of the growth on Bitfinex?
The analysts at Arcane Research identified another fascinating factor. An incentive, if you will. They called it a “prolonged structural mispricing” and it refers to a “dollar-adjusted premium or discount in Bitfinex’s BTCGBP pair last week.” All you need to do is “adjust the BTCGBP pair to USD” to see that the pound sterling/bitcoin pair is “trading at a significant discount to the dollar spot”. This was an effect and not a cause. The market movements created this arbitrage opportunity. People who discovered the stimulus in time benefited.
“When the GBP bottomed out against the USD, BTCGBP traded at a huge discount compared to BTCUSD. The discount turned into an extended premium with certain fuses deep in discount areas as GBP traded in a highly volatile environment.
Despite the importance of this factor, Arcane Research still believes that “market makers’ exposure to sterling was the most important factor”.
Featured Image by Ewan Kennedy on Unsplash | Charts by TradingView and The Weekly Update