by Jamie Holmes
Following the announcement by the UK government of a major shift in economic policy, the British Pound (GBP) plunged to a fresh 31-year low today as Asian markets awoke, with BTC-GBP looking to smash the £500 psychological barrier and outperforming other bitcoin-fiat pairs today. This is the largest decline in the Pound since ‘Brexit’, on comments from French President Hollande convincing other EU members to negotiate tough with the UK. Also, UK Prime Minister Theresa May confirmed that Article 50 will be triggered, the legislation formally required to exit the EU, in March 2017.
This recent development has produced a divergence in the gains between BTC-GBP and BTC-USD, with the latter up just around 1 percent on the day. However, against the British Pound, bitcoin has appreciated almost 3 percent on Coinbase and more than 3 percent on the Kraken exchange. With a break of the £500 handle imminent, a bullish breakout is quietly bubbling away, with this week seeing the largest appreciation since June 2016.
As the Pound continues its downward spiral, the state of California has now overtaken Britain to become the fifth largest economy in the world based on US Dollar terms. Traders are selling the Pound as recent events indicate a ‘hard’, instead of ‘soft’, Brexit will materialize. A ‘hard’ Brexit will mean that Single Market access will be restricted severely, preventing the UK from benefitting from the free and frictionless movement of goods, services, people and capital across Europe.
From a fundamental point of view, this will depress the value of the pound over the long-term as the move away from economic integration with Europe will act as a drag on the UK’s economic activity, inflation, and productivity. To market financial services to Europe that Britain relies on so much, it will cost them to enter into the Single Market and could see London’s status as the leading financial hub threatened by Frankfurt.
One Japanese bank has already started searching for another location in Europe following May’s speech on Article 50, signalling capital flight and brain drain could become a serious problem for the UK in the near future.
As a result, we expect BTC-GBP to continue to outperform bitcoin-fiat pairs over the long term. With such a weak fundamental outlook for the UK, BTC-GBP now looks to break above 2016's high at £549.45 and we set our long-term target at the 161.8 percent Fibonacci extension level, £703.61, illustrated on the chart below.
Bitcoin has bounced from the 50 percent retracement level at £424.73 toward the end of August. This week, BTC-GBP has broken the resistance at the Fibonacci level £490.58 and now the next resistance lies at £549.45. A break of this level will see markets extend as high as £700.
The Ichimoku indicator also displays that bullish momentum is starting to pick up in BTC-GBP. The conversion line (blue) has started to trend higher, indicating a higher likelihood that bullish momentum will prevail over the next few weeks. Moreover, the green Ichimoku cloud has also started to trend higher after displaying trendless behaviour. Therefore, both of these signals indicate only the beginning of a long-term uptrend in BTC-GBP, with a very high likelihood of new highs for the year.