Brexit shows how bitcoin shines as a safe-haven asset

Thursday’s historic vote by Britain to exit the European Union (EU), known as the Brexit, carried with nearly 52 percent of Britain’s support, and nearly every one of the world’s financial markets have reacted to the threat of Britain leaving the EU with turmoil.

Most markets plunged, especially stocks and currency in Europe where a loss in confidence in the EU or Britain are both hardest felt, but some markets did just the opposite. These were mainly the so-called safe-haven assets, which includes Gold, Silver, the Swiss Franc, and now Bitcoin.

During Thursday’s historic event, more than 17.4 million Britons voted to leave the EU while 16.1 million voted to remain in the nationwide June 23 referendum. In England and Wales, more than half voted to leave the EU whereas in Northern Ireland 55.8% voted to remain and 62.0% in Scotland. British Prime Minister David Cameron, firmly opposed to leaving the EU, subsequently announced his resignation stating that he would be out of office by October.

The Brexit vote was promised by Prime Minister Cameron in 2013 in order to appease the growing anti-EU wing of his own Conservative Party. Technically, the referendum isn’t legally binding by itself, not until the British government invokes Article 50, a provision of the EU treaty. It is unlikely that Mr. Cameron would go against the will of the voting majority, however, he has said that he would leave the invocation of Article 50 to his successor at any rate.

While it will take some time for Britain to begin its exit procedure, European Commission President Jean-Claude Juncker reportedly said in an interview with Germany’s ARD television station that he wants the process to begin now.

"Britons decided yesterday that they want to leave the European Union, so it doesn’t make any sense to wait until October to try to negotiate the terms of their departure. I would like to get started immediately."

– Jean-Claude Juncker, President of the European Commission

The most obvious market reaction was the British pound plummeting to its lowest level since 1985. Investors fled to the American dollar and the yen, at least on their way out to other safe-haven assets.

Much of the rest of the Eurozone markets were hit by large selloffs too. The Euro Stoxx index, which measures stocks in the Eurozone, closed down 7.7% for the day on Friday. The Euro itself fell 1.7% against the USD, and 4% against the Yen while rising 4.7% against the British pound.

Investors did the most damage to the Eurozone’s more debt-riddled, peripheral economies, including Italy and Spain. However, the U.S. stock market saw its’ share of the carnage as well, despite not being aligned with either side of the Brexit vote officially. Wall Street suffered their worst drop in ten months during Friday’s trading, following major overnight losses in Hong Kong and Japan.

The Dow Jones Industrial Average fell 3.4%, or 611 points, closing at 17,400. The S&P 500 fell a similar 3.6%. Nasdaq’s composite index, already underwater for the year, fell a whole 4.1%. Overall, the Brexit market panic eradicated nearly $800 billion of market value in the U.S. alone, as the Wilshire 5000 index points out.

Former Federal Reserve Chairman Alan Greenspan said that the Brexit vote will usher in a period that’s even worse than the darkest days of October 1987. “This is the worst period, I recall since I’ve been in public service," Greenspan said on "SquawkontheStreet."

"There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away."
— – Alan Greenspan

Meanwhile, safe-haven assets are doing much better. The Swiss Franc climbed to its highest level against the Euro since August last year and Friday marked its biggest single-day jump since the Swiss National Bank removed its Franc peg to the Euro that January.

Gold is having its biggest rally since 2008, and its’ biggest one-day gain since September 2013.

Many in the mainstream media are starting to catch on to the similar behavior between bitcoin and gold, especially at times of financial turmoil. Fortune Magazine wrote that “As Global Currencies Plunge Over Brexit, Investors Turn to Bitcoin,” and Bloomberg went so far as to chart out how closely gold and bitcoin are acting while they claim “Bitcoin Trades Like Gold as Investors Seek Brexit.”

Venture Capitalist Barry Silbert took to twitter to note that the occasion was special because bitcoin seems to be in the process of being introduced to the world as an official safe-haven.

Twitter has been alive with commentary and predictions by bitcoin executives, speakers, and developers on the matter. Another Venture Capitalist, Vancouverite Marc van der Chijs, stated plainly what he saw happening to bitcoin:

Meanwhile, famed bitcoin speaker and author Andreas Antonopoulos tweeted approval of the transformation:

All over social media and the blogosphere was like a full-day celebration for bitcoiners once the results from Britain were in. British bitcoin exchange Magnr was among the first to tweet in celebration, even before the results were finalized:

"#Bitcoin is up on #GBP dropping on a #Brexit vote. Reminder: #Bitcoin is a great hedge for geopolitical instability"

Jesse Powell, chief executive officer of San Francisco-based Kraken, the world’s largest bitcoin exchange in Euro volume told Bloomberg  that "A lot of people are buying Bitcoin for pounds and Euros.”

“Our volume has doubled over the last 24 hours. We saw a huge spike in that market. People are looking for a safe place to keep their money, amidst all of this uncertainty.”

• Jesse Powell, Kraken CEO

In an email statement to Bloomberg, the Winklevoss twins’, whose bitcoin exchange Gemini just expanded into the UK on Tuesday, said that they have “seen a lot of signups from U.K. residents since then. We’ve been open for trading nonstop throughout the week, and are excited to help contribute to digital asset liquidity on a global scale.”

As much as it seems to have helped the price of bitcoin, not everything about the Brexit news is great for bitcoin users. A few bitcoin exchanges and other bitcoin-related businesses in both the UK and Europe will have some challenges to face. As Britain exits, the existing credit and debit card deals that bitcoin-accepting businesses have in place with credit card companies like Visa may have to be renegotiated. Legal problems may flourish as well.

“The legal uncertainties make it difficult to make hiring/strategy decisions based around a UK core.”
—  –  Preston J. Byrne, ERIS

Some merchants may even find they have to switch providers to keep accepting bitcoin. Startups looking for funding in Britain may be the hardest hit in the short-term, however. With financial uncertainty now descending upon what is otherwise a foremost FinTech hub of the world, investors are already finding it harder to justify backing startups in the country.

Ryan Selkis of TBI consulting was looking for higher returns than what we saw since the vote, and feels that we didn’t get them because Bitcoin still doesn’t have enough recognition by the public at large.

"If Bitcoin industry startups were good at marketing, the price would be up much more than 6% today."
— – Ryan Selkis, Founder TBI consulting

However, six percent is just the post-vote increase. As Spencer Jakab pointed out on his Wall Street Journal blog, the real improvement in bitcoin’s price could be much higher. "When the leave vote took the lead and markets flipped, Bitcoin jumped. Between its trough at midday in New York Thursday and 2:00 a.m. when the outcome became official it surged by over 20%," he explained, and then compared it to the improvement of Gold trading in the same format. "GLD, from trough to peak, appreciated by just 5.4% as of mid-morning."

Others noted that the price has other news driving it up. Wedbush Securities’ Gil Luria pointed out that the price jump is about more than just the Brexit. He mentioned China’s ongoing insecurity with their Yuan devaluation as being the biggest driver in price, and the upcoming block reward halving event as being another. According to Luria, the Brexit fits in as part of "general uncertainty and fear" that helps bitcoin in general. "Brexit is just the latest example of this," the stock analyst explained.

“But bitcoin is a place to hide in times of uncertainty. I’d rather have the volatility of bitcoin with the knowledge that my currency is going to get depreciated by 30% in the next few months. Bitcoin has its own drivers, its own value, and it’s not going to go up and down because of the actions of central banks.”
— – Gil Luria, Wedbush Securities

Given time, the Brexit could help bitcoin in another way; by removing the EU regulations that are more strict than Britons would allow.

“It’s entirely possible Brexit makes UK more attractive place to build and finance new technology companies.”

• Marc Andreessen, General Partner Andreessen Horowitz