Bitcoin and the Great British Pound (GBP) have shown very little or inverse correlation in the past. But with Brexit negotiations underway, the future is uncertain for the British economy. As part of the ‘Single Market’, UK businesses have unfettered access to 500 million consumers in all states, but this will change dampening economic growth for some time. New negotiations regarding tariffs, quotas and other trade and non-trade barriers are already ongoing.
In the event of a slow economy, the Bank of England will have to inject more money into the system and manage interest rates to induce growth. In contrast, the supply of Bitcoin remains fixed. Therefore, amidst all uncertainties and political instability, Bitcoin could prove to be a ‘safe-haven’ asset, provided it gains against the GBP – but this doesn’t mean that Bitcoin volatility and the unpredictable nature of cryptocurrencies should be ignored.
When Britain voted to exit the European Union, the price of Bitcoin surged. The GBP dropped around 10% against the US dollar, reaching a 30-year low as the global currency markets reacted to the news. But the price of Bitcoin continued to rise. In early June 2016, Bitcoin touched a figure of $719, a two-year high, thanks to Brexit announcements. Even opinion polls were causing huge price fluctuations for Bitcoin.
The UK started off as being the global hub of the Bitcoin industry. In 2015, the British Prime Minister’s office made much efforts to promote the currency overseas. The nation was proactively supporting the digital currency boom.
Deloitte had ranked London as the #1 destination for fintech innovations, but the country is yet to legalise Bitcoin as a payment method. Right now, the banking sector is against the government, which is pro-blockchain. By 2019, if things go as planned, Britain will exit the EU, and numerous regulations and legislations could be implemented.
During this period of instability, we could see an influx of new users buying Bitcoins. As mentioned earlier, if the Pound Sterling loses its value against other currencies, Bitcoin could be the preferred option for many investors.
In 2015, the European Union decided not to tax Bitcoins, a decision that still holds. With Brexit, taxation will be a tricky aspect. According to the Library of Congress website, “Her Majesty’s Revenue and Customs has classed bitcoins as ‘single purpose vouchers,’ rendering any sales of them liable to a value-added tax of 10–20%.” It is still unclear if the UK government will allow this decree to pass.