On June 24, 2016, immediately after the final Brexit vote was publicized, the pound sterling plunged to its lowest level since 1985; conversely, the US dollar and the Japanese yen rose to new levels.
It’s telling, though, that the price of bitcoin actually rose 6.5% in the 24 hours after the results of the Brexit referendum became publicized. Bitcoin had already been up 25% prior to the vote for reasons not directly related to Brexit.
Clearly, those who jumped in to bitcoin to drive up the price were looking for an alternative to conventional currency during a time of political unrest.
In that role, bitcoin performs much like gold – an uncorrelated asset to which traders flock during times of geopolitical uncertainty. According to Coinbase data, the Brexit movement had a positive impact on bitcoin prices even before the referendum. In the week just before the vote, Coinbase, which offers a well-known bitcoin wallet and a bitcoin exchange, encountered a 55% increase in new account applications and a 350% increase in bitcoin purchases from the UK.
On the day of the referendum, the anticipation of Brexit affected bitcoin purchases before the actual vote, and Coinbase saw an 86% increase in UK signups. One Coinbase official observed a similar reaction with bitcoin when it served as an effective safe haven against the debt morass in Greece, and the capital regulations in China.
Founded in 2012, Coinbase now has 4 million users and operates in 32 countries. It launched in the UK only a year ago, and is making it possible for Brits to buy bitcoin in pounds, euros, or dollars.
Bitcoin and China
China is attempting to outdo the West in bitcoin activity by making large investments in server farms and carrying on immense speculative trading on Chinese bitcoin exchanges. In fact, Chinese exchanges account for 42% of all bitcoin transactions in 2016, according to a Chainalysis report commissioned by The New York Times.
Just last week, the giant Chinese internet company, Baidu, along with three Chinese banks invested in the popular American Bitcoin company Circle.
Again, we would like to emphasize the effectiveness of a combined bitcoin/gold investment. Gold, of course, is a traditional risk-off safe haven for investors and traders looking to protect their wealth against the uncertainty of paper assets. Bitcoin, on the other hand, presents an excellent speculative opportunity for an investor looking for aggressive upside return. The combined bitcoin/gold strategy can be especially effective since the digital currency and the yellow metal are both non-correlated assets.
The current market cap of all bitcoins is now $10.7 billion.