Bitcoin's Price Surges 70% Amid Brexit Uncertainty

Bitcoin, a digital currency, is often associated with various catchphrases that describe its potential benefits. One of the most compelling slogans is that Bitcoin serves as a "hedge against global instability." This phrase suggests that Bitcoin can provide a safeguard against the volatility and uncertainty that can affect traditional financial systems.

To understand how this plays out in real life, consider the events surrounding the Brexit referendum in 2016. The UK's decision to leave the European Union sent shockwaves through the financial markets. The British pound experienced a significant decline, falling more than 8% to a 31-year low on the day after the referendum. This was the pound’s largest one-day fall in history, and it continued to drop by another 3% in the following days.

In contrast, Bitcoin's price against the US dollar was on an upward trajectory. Between the last week of May and the week before the Brexit vote, Bitcoin's price rose by 70%, from about $440 to nearly $760. While Bitcoin briefly corrected by 20% in the days leading up to the referendum, it continued to rise as the pound sank deeper over the following months. This trend suggests that Bitcoin may have served as a hedge against the instability caused by Brexit.

However, it is challenging to directly prove that Bitcoin's price movements were solely due to macro events like Brexit. Bitcoin's uptrend against the US dollar had started almost 18 months before the Brexit vote and continued for another year and a half, culminating in the December 2017 all-time high close to $20,000. Some might argue that this was a coincidental correlation. Nevertheless, there are indications that the connection ran deeper, even if it was short-lived.

For instance, the 2013 banking crisis in Cyprus showed that there was an appetite to hedge against instability by escaping into Bitcoin. The price of Bitcoin rose almost 350% in two months as local banks teetered on collapse. Similarly, in 2015, Bitcoin jumped 10% during the broader Greek debt crisis, although it was unclear how much of this could be attributed to Greeks dumping euros for bitcoins.

More recently, the US dollar reached three-year lows, while Bitcoin continued to trend sideways, with some brief volatility around the renewed Israel-Iran conflict. One interpretation is that Bitcoin's price is holding strong because US dollars are currently worth less. Another interpretation is that Bitcoin's hedge-case is clearly intact. Both scenarios are favorable for Bitcoin, reinforcing its reputation as a hedge against global instability.