Going long the bitcoin price is a healthier strategy today than going long the British pound as the currency hits historic lows against the US dollar.
Unfortunately for Brits, it’s not a trade decision because if you’re paid in GBP, you’re long sterling.
Should Brits be paid in BTC? Bitcoin price outlook looks better than GBP
Foreigners are fleeing British assets. Investors are demanding a high price to finance the huge and growing current account deficit of 8% – about a year ago it was 2%.
If you’re based in the UK, there’s not much you can do to dodge the bullet, other than asking your employers to pay you in the mighty dollar, which is getting stronger, or in bitcoin. Bitcoin? Really! Be patient with me.
Crypto schadenfreude is sweet
Crypto prices are under pressure, but it feels like a sideshow when all asset classes are falling in value.
At the center of the current turmoil is the British economy and the British pound.
Indeed, at times like these, holders of crypto can be forgiven for displaying a little schadenfreude.
Having become accustomed to dismissing ill-informed comments about the supposed emptiness of the digital asset class, it is with a wry smile that the vicissitudes in stocks, bonds, currencies and commodities are observed.
Markets are beginning to feel disorderly.
GBP/USD is at an all-time low of 1.0373 and WTI crude benchmark is down 37% since mid-June. British bond yields (gilts) soared and this helped cable (GBP/USD) move back to 1.07.
And the market is pricing in a 200 basis point hike from the Bank of England by November as it tries to stem the unfolding collapse of the currency. These are staggering numbers.
Meanwhile, the Bank of England “has not decided whether to comment on stabilizing the market” and calls for an emergency rate hike are getting louder and more urgent.
With central bankers forced into a corner as they try to round the circle of controlling inflation through interest rate hikes without sending the global economy into recession.
Indeed, some economies are already in recession.
There is undoubtedly a growing sense of economic crisis, with a fractured political landscape in many countries not exactly helping to calm nerves.
Central banks stepping up in a recession make crypto look good
The latest chapter in the downward slide into recession feels like an inflection point as the world economy transitions from bond price bubble (low interest rates) to bond yield explosion. Global bonds are experiencing their worst year since 1949.
It increasingly looks like the Fed and other central banks are tightening into a recession because, as they see it, there is no other choice but to tame inflation.
This means that all the eps 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 well.
As Tom Keene put it this morning on Bloomberg Surveillance: “It’s just not about the soap opera known as the United Kingdom.
Don’t count out Bitcoin – on the contrary, it’s time to enter DCA
This brings us to the bellwether of the crypto price complex – bitcoin.
Bitcoin fell 1.2% as it struggles to hold above the short-term low around $18,700.
Still, this is nothing compared to the historical movements taking place in FX and fixed income (bonds).
Jordan Rochester, FX strategist at Nomura, has some very bleak – and realistic – predictions for the UK market, noting with a nod to the country’s policymakers that “hope is not a strategy”.
He thinks GBP will be below parity with the dollar at 0.95 by Q1 next year.
The greater the distress in non-crypto asset classes, the greater the attractiveness of crypto.
That might seem a bold, if not reckless, statement given the ongoing crypto winter.
What do crypto prices have to offer that the British pound and other assets can’t?
However, crypto has a few things going for it that say the British pound doesn’t.
The odds of bitcoin bottoming out and starting to recover are higher than GBP at this time, making the current convergence of factors a buying opportunity:
Bitcoin doesn’t have much further to fall – the same cannot be said for stocks and bonds.
Bitcoin still holds the prospect of being a safe haven against inflation if and when the correlation with stocks is broken.
Which begs the question, what will it take to decouple crypto from stocks?
The answer depends on capitulation – will that fateful day come first in crypto or stocks?
It could come earlier in crypto, with stocks unlikely to see capitulation (where buyers sell and exit the market) until the second half of next year. In a contrarian way, this is a good thing for medium to long term holder of bitcoin, Ethereum and other crypto.
You can even consider holding one of the new types of coins in the crypto gaming sector, such as Tamadoge which will appear on OKX tomorrow.
Finally, even if you’re not in the eye of the storm in the UK, what’s happening can provide clues about how the fissures in the global economy could widen into chasms – and show why holding a crypto could be the smart move be.
