Going long in bitcoin is currently a more sensible strategy than going long in sterling as the fiat currency hit an all-time low against the US dollar. Unfortunately for the Brits, this is not a business decision because if you get paid in GBP you are forced to go long in sterling.
Should Brits get paid in BTC?
Foreigners are fleeing British assets. Investors are demanding a high price to finance the gigantic and growing current account deficit of 8% – about a year ago it was 2%.
If you live in the UK, there’s not much you can do to dodge this situation, except maybe ask for payment in dollars… or bitcoins.
The collapse of the pound, a “schadenfreude” for crypto
Cryptocurrency prices are under heavy downward pressure, but this remains secondary when all asset classes lose value.
The British economy and the pound sterling are at the heart of the current turmoil.
Indeed, at times like this, cryptocurrency holders could be forgiven for rejoicing.
Having grown accustomed to fending off uninformed commentary about the supposed vacuity of the digital asset class, it is with a smirk that one watches the swings in stocks, bonds, currencies and commodities.
The markets are indeed showing signs of disorder.
GBP/USD hit an all-time low at 1.0373 and WTI Crude Oil is down 37% since mid-June. UK bond yields (gilts) surged, allowing GBP/USD to rally to 1.07.
And the market expects a 200 basis point rise in the Bank of England by November to try to stem the collapse of the national currency. These numbers are staggering.
Meanwhile, the Bank of England “has not decided whether to make a comment in order to stabilize the market” and calls for an emergency rate hike are growing louder.
Central bankers are cornered as they attempt to resolve this vicious circle by controlling inflation by raising interest rates without tipping the global economy into recession.
Indeed, some economies are already in recession.
There is no doubt that a growing sense of economic crisis with a fractured political landscape in many countries is nothing soothing to the nerves.
By comparing cryptocurrency prices and pound valuation, Dan Helda long-time bitcoin influencer and supporter, provided a timely reminder, given past remarks by the Governor of the Bank of England, Andrew Bailey, on Bitcoin and related issues:
Central bank tightening during recession improves image of cryptocurrencies
This final chapter of the descent into recession looks like an inflection point as the global economy moves from a bond price bubble (low interest rates) to an explosion in bond yields. International bonds are having their worst year since 1949.
The Federal Reserve Bank and the other central banks tighten their policies until the recession because, according to them, there is no other choice if we want to control inflation.
This means that all forecasts for next year are off – economic activity is starting to slow – this is certainly the case in the UK and the rest of Europe and soon in the US.
As stated Tom Keene on Bloomberg Surveillance this morning: “It’s an unknown soap opera in the UK”.
It’s time for Bitcoin to come into the picture
Which brings us to the main barometer of cryptocurrency price – Bitcoin.
Bitcoin is down 1.2% as it struggles to hold above the short-term low around $18,700.
But that’s nothing compared to the historic moves taking place in the foreign exchange and fixed income (bond) markets.
Jordan Rochester, FX Strategist at Nomurashared a very bleak – and realistic – outlook for the UK market, noting, with a nod to the country’s policymakers, that “hope is not strategy”.
He thinks the pound sterling will be below parity with the dollar in the first quarter of next year, at 0.95.
The greater the distress of non-crypto asset classes, the greater the appeal of cryptocurrencies.
That might seem like a bold, even reckless statement given the ongoing crypto winter.
What do cryptocurrencies have to offer that sterling and other assets can’t?
However, the crypto has a few strengths that the British pound, for example, does not have.
The chances of Bitcoin bottoming out and starting to rally are higher than the British Pound at this point, making the current convergence of factors a buying opportunity:
Bitcoin no longer has much to lose, which stocks and bonds do not.
Bitcoin still has the prospect of being a safe haven against inflation if and when its correlation to equities breaks.
Hence the next question: what will it take to decouple Bitcoin from equities?
The answer depends on capitulation – will that fateful day come first in crypto or stocks?
It could come sooner for cryptocurrencies, with equities not likely to experience a sellout (as buyers back off and exit the market) until the second half of next year. This is good for holders of Bitcoin, Ethereum and other cryptocurrencies in the medium to long term.
You might even consider holding one of the newer token types in the crypto gaming industry, such as Tamadoge, which will be listed on OKX tomorrow.
Finally, even if you’re not in the eye of the storm in the UK, what’s happening there can provide clues as to how the cracks in the global economy could turn into chasms – and why hold cryptocurrencies might be a smart move.
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