With the 300-year-old UK pound crumbling like an old scone in recent months, it seems like British investors have lately been trading it in for a fresher alternative – bitcoin. But have they?
That’s what the chart implies – at first glance at least. It shows the total amount (converted to US dollars) of all the pound sterling and bitcoin that’s been traded on five major crypto exchanges. That trading volume reached record highs this week, with the equivalent of $880 million changing hands on Monday alone – the day the pound slumped to its lowest-ever level against the dollar (around $1.035).
But all is not what it seems here. With the pound falling so steeply on Monday, the crypto exchanges would have been awash with “arbitrage” traders looking to profit from the differences in bitcoin’s price (in pounds) across exchanges. See, when things get volatile, those prices can differ by a lot, so arbitrage traders could simultaneously trade pounds and bitcoin back-and forth on separate exchanges to pocket those differences. Still, bitcoin is up about 10% in US dollars since its June low, but in pounds it's up about 25%. So with the pound in such a state of chaos, bitcoin might just be working as a currency hedge, after all.
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