Trading BTC/GBP: An Overview
BTC is the symbol for Bitcoin and in this pair, it is teamed up with the British Pound. In effect, when you buy a BTC, you are selling the GBP. BTC is the base currency here, so that means every 1 Bitcoin is equivalent to the current value of GBP. For instance, if BTC/GBP = 2,903 Pound sterling, then 1 Bitcoin is worth 2,903 Pounds.
Both the cryptocurrency BTC and the fiat currency GBP have price fluctuations for a variety of different external factors. For the GBP, this includes major economic data releases such as GDP, retail sales, industrial production, inflation and trade balance, which are released at regular intervals. In addition, employment data, interest rates, Bank of England meetings, and geopolitical events can all drive movements in the GBP.
Bitcoin price movements are generally considered to be highly susceptible to social mood as well as to the news. Other factors that move the Bitcoin price are the Supply/Demand curve for the supply base which is capped at 21 million Bitcoin. Whereas the trades that see the buying and selling of tens of thousands of Bitcoin through the many exchanges every day cause violent price spikes.
This pair is volatile due to the fact that one of the pairings is a cryptocurrency, meaning that the pair should be handled carefully. It also means that many interesting opportunities are created for traders.
BTC is the original and dominant cryptocurrency, accounting for a large share of the entire market. Released in 2009, Bitcoin was presented as an improved alternative to fiat currencies. GBP, the fiat side to the pairing is the symbol for Pound Sterling, the currency of the UK and one of the most traded currencies in the world. The combined pair allows traders, most likely those whose trading account base currency is Sterling, to take a position on the price direction of Bitcoin.
Why Include BTC/GBP in an Investment or Trading Portfolio?
Your trading account’s base currency is GBP: since cryptocurrencies demonstrate much higher levels of volatility in comparison to major fiat currencies, on an average day it shouldn’t make a huge amount of difference which fiat currency is traded against Bitcoin. The Pound Sterling’s average daily volatility against other major fiat currencies is usually somewhere around 0.50%. In comparison, Bitcoin’s daily volatility is around 4%, and at times, much higher. As such, the main reason that traders choose GBP as the fiat side to a BTC pair is because their trading account’s base currency is Pound Sterling.
Day traders: short-term traders looking for higher levels of volatility are drawn to Bitcoin. As mentioned, daily volatility, as of August 2018, averages 4% and has historically been much higher. When BTC’s direction is impacted by major news, swings regularly hit double figure percentages. While this significantly increases the risk attached to trading BTC GBP, it also offers attractive opportunities for much higher pip returns than fiat currencies and other more mature tradable instruments. For experienced day traders this can be a major selling point to taking BTCGBP positions.
Investors/Fundamentals Traders: in addition to intra-day volatility opportunities, Bitcoin also has a history of going on bull and bear runs of several weeks at a time, over which its value can change significantly. A 25% drop or gain or even more over a period of two weeks is a regular occurrence. Over the course of 2017, BTC went from around $1000 to $20,000. Over the first eight months of 2018, it retreated back to around $6000.
For traders who prefer to take a longer term fundamentals-based approach rather than day trading on technical analysis, or investors with long-term horizons, the longer term price swings of BTCGBP also offer more volatility than is usually the case for any purely fiat pairing.
Bitcoin Bulls/Bears: there are many who either passionately believe in the future of Bitcoin as an alternative to fiat currencies and also many who are convinced that cryptocurrencies are a fad that have no long-term future. Taking a long-term BTC/GBP position is a way for Bitcoin and cryptocurrency proponents and naysayers to put their money where their mouths are and take investment exposure on their reasoned opinion.
Major Drivers of BTC/GBP
Cryptocurrency market sentiment: as a market that can still be considered to be immature, the biggest driver of Bitcoin’s price direction to date has been sentiment. When public opinion shifts to optimism that Bitcoin and other cryptocurrencies have a mainstream future and will become an established part of financial markets, prices rise. When sentiment turns towards concern that Bitcoin is losing traction and popularity, its price drops. Particularly in the case of Bitcoin, as the most established cryptocurrency, sentiment often centres around the prospect of mainstream financial institutions starting to trade BTC.
BTC Futures Contracts: this is still perhaps not a major driver of BTC price, as the crypto futures market is still very young and relatively small. Nonetheless, it is certainly worth mentioning as it can be expected to become a growing influence. In late 2017, the CME and Cboe exchanges began offering Bitcoin futures contracts and other major exchanges are said to also be considering a move into the cryptocurrency market. As the volume of futures contracts develop, they will have an increasing influence on the spot price.
Conclusion: the BTC/GBP trade
For either intraday, swing traders or longer term investors, the BTC GBP pair offers Sterling denominated exposure to the price trajectory of Bitcoin. The volatility of the cryptocurrency means that traders should handle it with care, but this also opens up extremely interesting opportunities that pure fiat pairs do not.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. Your capital is at risk.
*Cryptocurrencies can fluctuate widely in price and are, therefore, not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework.