Since the 2016 referendum when UK citizens decided to leave the EU, Brexit has been continuously covered by mainstream media outlets as one of the hottest topics in Europe.
Brexit is a controversial topic that has divided the UK’s population. Lawmakers have been struggling to proceed with the steps that would lead the country out of the EU. The so-called Brexit deadlock even resulted in the fall of former Prime Minister Theresa May.
While the ruling Conservative Party, led by British PM Boris Johnson, faced initial challenges due to the lack of support in the UK Parliament, the chances for Brexit have increased substantially since scoring a landslide victory in December 2019.
While there has been plenty of discussion on Brexit’s possible impact on the UK economy, it’s also interesting to explore Brexit’s potential effects on Bitcoin and the cryptocurrency industry – investors favored digital assets in the past as a way to hedge against major geopolitical events that create political and economic uncertainty.
Bitcoin as a Safe Haven Asset
In the wake of the 2008 financial crisis, the mysterious Satoshi Nakamoto created Bitcoin in 2009 as a peer-to-peer electronic payment system that is independent of centralized banking networks and government monetary policies.
As Bitcoin gained popularity, investors started to see it as a safe haven (like gold): an asset they can hold to avoid the consequences of market turmoil that is often spurred on by major geopolitical events.
There are plenty of examples around the world, where we’ve seen this type of dynamic.
Bitcoin, but also Dash and other cryptocurrencies, have been in high demand for some time now in Venezuela and Argentina, two Latin-American countries where the national currency has been suffering from extreme hyperinflation.
As a result of record inflation rates, citizens of both nations embraced Bitcoin as an alternative medium of exchange and store of value to cope with the consequences of the economic crisis.
Cryptocurrencies also benefited from the uncertainties of the US-China trade war. According to an eToro report, the number of Bitcoin trades has increased on the platform by 284% between May 19 and August 19, 2019 – during the peak of the conflict – compared to the period between March 22 and June 2018 when the dispute was still fresh.
By comparison, gold – one of the most popular safe-haven assets – trades surged by 73% rate during the same period. While gold gained 17.4% against the USD, BTC realized a 42.2% growth between May 19 and August 19, 2019.
A reason to be bullish on Bitcoin?
Even a deal is reached between the UK and the EU, Britain’s exit from the bloc still comes with a great level of uncertainty for both sides as the United Kingdom constitutes the EU’s second-largest economy.
To hedge against that risk, we may see more investment flowing into Bitcoin as investors and ordinary folks alike may want to diversify their portfolio.
Bitcoin’s price, a day after the Brexit referendum, is a great indicator of how this might play out. On June 24, 2016, BTC experienced a value increase of 18.2%. On the other hand, GBP fell from 1.484 USD to 1.321 USD (a decrease of 11%) during the same period.
While digital assets might see growth after the UK leaves the EU, Brexit may also create new challenges for blockchain companies as they will have to comply with new regulations.
However, this might also provide blockchain companies with a chance to capitalize on Brexit. Cryptocurrency exchanges could establish localized fiat-to-crypto trading services to act as a gateway between the UK and EU in the post-Brexit era.
The UK could also take advantage of an increased interest in crypto by rolling out new, crypto-friendly regulations that could drive more business initiatives and take London – as a financial hub – to another level.
Time will tell, but we do encourage you to come to your own view on the market. Especially if you trade Futures on AAX, you can benefit from price rallies as well as dips, depending on whether you go long or short. Sign up today, verify your identity, and we give you $10 worth of Bitcoin to try trading on our platform.