The Impact of Brexit on the United Kingdom’s Crypto Sector
Brexit has served as a prime example of how ordinary citizens can protect their assets from political turmoil using Bitcoin. According to Forbes, the negative effects of a potential no-deal Brexit are leaking into the economy and affecting crypto startups in the region, September 4, 2019. If the U.K. leaves the European Union without a deal, it will be difficult from local crypto firms to justify operating in London.
A Hedge Against Power Driven Politics
The final results of the Brexit referendum were announced on June 24, 2016; since then, the British Pound is down 20 percent to the dollar while Bitcoin is up 1900 percent.
Political risks inherently affect fiat currencies as they are issued by the decree of a sovereign government. Brexit, in particular, has been eventful and uncertain at the same time.
FinTech companies have been found to be moving from the U.K. to Europe. Cryptocurrency is a global phenomenon, and the industry cannot operate at peak efficiency if it’s constrained by sovereign trade agreements.
Despite positive comments from Bank of England governor, Mark Carney, the U.K’s stance on cryptocurrency doesn’t seem very optimistic.
Access to international individuals that can help these companies further their products through machine learning, artificial intelligence, and other new-age tech innovations will be limited if a no-deal Brexit kicks in, and almost 20 percent of the talent pool at these FinTech firms are from the EU.
Brexit and Bitcoin
Capital flight from China into Bitcoin and Tether was widely considered one of the biggest factors leading to the surge in Bitcoin this year.
The impact of uncertainty stemming from Brexit could also be a driving force in Bitcoin’s run thus far.
A quick look at the GBP/USD chart and the BTC/USD chart shows that the broader patterns are more or less inversely correlated. The dollar’s dominance has wrecked havoc on other fiat currencies, but Bitcoin has been relatively unaffected.
Bitcoin is a hedge against the deviation of currencies caused by monetary stimulus. Those in the U.K. would do well by creating exposure – however little – to Bitcoin in their investment portfolio.
Our control over politics and the state of the economy is non-existent, but our ability to mitigate these risks has strengthened thanks to decentralization.