Brexit is finally happening after years of political battles and controversy. The United Kingdom’s House of Commons has approved Prime Minister Boris Johnson’s Brexit deal, and now the bill will head to the House of Lords for final approval, which should happen in coming weeks. Ultimately, Brexit is expected to occur on Jan. 31. In this article, we detail how economic instability surrounding Brexit will likely increase Bitcoin (BTC) buying pressure.
In order to understand how Brexit will impact the market and Bitcoin (BTC), it is important to understand what Brexit is. In the simplest sense, Brexit is the United Kingdom leaving the European Union, which is a political and economic union of 28 European countries.
The European Union has a set of laws that apply to all member countries, forming a single internal market that allows the free movement of people, goods, services, and capital. The point of this is to make a more efficient and stronger economy via the 28 member countries working together, but the downside is that the sovereignty of each member nation is diminished since the European Union can make political and legal decisions for member nations to an extent.
The United Kingdom has been part of the European Union for roughly 47 years, and therefore its economy and political system is highly interlinked with the European Union at this point. As Brexit progresses the United Kingdom’s sovereignty will progressively increase, and the economy of the United Kingdom will become increasingly separate from the European Union.
Brexit will not happen all at once, it is a process, and there will be a transition period until Dec. 31, 2020. The trading relationship between the United Kingdom and European Union will remain the same until that date, giving time to negotiate a free trade deal. If no deal is reached by December 31, then the economies of the United Kingdom and the European Union will all at once become separate, immobilizing free trade and throwing a wrench in economic efficiency.
It remains to be seen what exactly will happen during the Brexit transition period. In the end, there can be anything from a solid deal between the European Union and the United Kingdom to no deal at all.
This uncertainty is likely to have a negative impact on European stocks and bonds throughout 2020. Simultaneously, weakness in European equities and bonds could cause investors to flock to Bitcoin (BTC) as a safe haven asset.
Indeed, economists estimate that uncertainty over Brexit has caused the United Kingdom’s economy to be 3% smaller, resulting in a loss of $170 billion so far, with another $91 billion expected to be lost before the end of 2020. Undoubtedly, a similar economic contraction effect is likely occurring in the European Union as well.
Thus, uncertainty over Brexit will likely apply downward pressure to European stocks and bonds throughout the entirety of 2020, but this will likely simultaneously increase Bitcoin (BTC) buying pressure.
Therefore, Brexit can be added to the list of positive fundamental forces for Bitcoin (BTC) in 2020, alongside the block halving, geopolitical instability in the Middle East, and the potential for stocks to crash due to skyrocketing global debt and lack of liquidity.