Crazy World: Bitcoin (BTC) Is Currently Less Volatile Than the British Pound (GBPUSD)

Rohail Saleem

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Who could have imagined that Bitcoin (BTC), that eternal fount of volatility that just keeps on giving, would end up as an island of placidity in a sea of roiling fiat currencies? However, judging by the historic rout in the British Pound Sterling (GBPUSD), this is exactly what has taken place over the past few days.

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The chart below details the price moves of Bitcoin and GBPUSD since the 17th of September.

Bitcoin vs. GBPUSD

During this period, Bitcoin is down 3.27 percent, while GBPUSD is down 5.38 percent. Nonetheless, the world’s leading cryptocurrency continues to have astronomically high implied volatility when compared with that of GBPUSD. This comparison, however, hammers home the extraordinary circumstances that have led to the dramatic plunge in the British Pound Sterling.

We noted over the weekend that Bitcoin has been struggling to rise over the $20,000 psychological barrier as its elevated correlation with high-beta US equities continues to act as a drag. For the GBPUSD, however, the situation took a turn for the worse when Kwasi Kwarteng, the new British Chancellor of the Exchequer, announced a package of tax cuts worth around 45 billion pounds, constituting the biggest overhaul of the country’s tax system in 50 years. Given that UK’s combined twin deficits – budgetary and current account – sit at over 250 billion pounds, this overhaul was interpreted by the market as incoherent with the country’s deteriorating macroeconomic indicators, marred by plummeting growth and a raging inflationary impulse.

Of course, as the GBPUSD entered a tailspin last week, parity calls started to grow more sonorous. As a refresher, a parity is reached when one currency equals the value of the other, in this case, the US Dollar. These calls then reached a fever pitch today when Nomura published a fresh investment note, predicting that the GBPUSD would hit parity by the end of November and then fall to around 0.95 by Q1 2023. Meanwhile, Bitcoin has been relatively range-bound, thus producing the current regime where the British Pound has ended up as the more volatile instrument.

Interestingly, retail investors have also been focusing on the GBPUSD crash today, highlighting the extraordinary nature of these recent events. Of course, we do not expect this regime to last, and Bitcoin might well regain its volatility mantle during the next significant leg lower.

Bitcoin’s detractors have continued to hone in on its outsized volatility to declare that the world’s largest cryptocurrency has no use as a store of value. However, given the recent tailspin in GBPUSD, that argument has been dented to a certain extent.

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