UK General Election: what impact on bitcoin?
Monday 27 April 2015
In case you hadn’t noticed, the UK is just days away from a General Election. Not just any General Election, either. Thanks to the Fixed Term Parliaments act it’s been the longest campaign ever, and thanks to a breakdown in trust and the rise of minor parties capitalising on the protest vote it’s been the messiest. Unlike its European neighbours, the UK doesn’t like coalition government and hasn’t yet figured out how to do it properly - and yet that’s exactly what we’ll be dealing with, since neither of the largest parties is going to get anything close to a majority. Does this have any implications for bitcoin in the UK?
The certainty of uncertainty
The answer is very likely yes, though not in a particularly profound way. The only thing that is near-certain is uncertainty. When the dust settles on May 8, the horse-trading will begin. It may take days or even weeks to form a government that is capable of winning a confidence vote. In the medium term, it’s not impossible that we’ll see another election a few months down the line.
The Scottish National Party is threatening to wipe out the Labour vote in Scotland, ruining Labour’s chances of a nationwide victory, with or without a working majority. Having them as a part of any government poses a problem, because as a nationalist and anti-austerity party the SNP pose a serious challenge to both the ideology and policies of their partners - and have pledged to block the Conservatives in any case. The alternative is a complex and fragile ‘rainbow’ coalition of minor parties propping up either Labour or the Conservatives. Add to that the chance of a referendum on the UK’s membership of the EU prompted by UKIP’s posturing, and it’s not a pretty picture at all.
What this means, almost inevitably, is a loss of confidence from investors. Investors dislike uncertainty, and the election promises buckets of it. Uncertainty about the colour of the next government, its attitude towards business and approach to austerity; uncertainty about the stability of any coalition or confidence-and-supply relationship, and the looming risk of a second election; uncertainty about the UK’s continued membership of the EU. Short, middle and long-term, uncertainty is the order of the day.
Flight to security
Back in December 2014, when the ruble tanked, rumours abounded of Russians moving their money into bitcoin to get around capital controls. A similar picture emerged from Cyprus in April 2013. Would the same happen in the UK?
The short answer is no. We’re not looking at the kind of economic crisis that the Russians and Cypriots were, and capital controls are not on the cards. There’s no chance of bitcoin becoming a ‘safe haven’ asset for the UK any time soon (and given its volatility that’s hardly the right term anyway - even if your currency is undergoing double-digit intraday depreciation, like the ruble).
No, the safe haven in today’s world remains the dollar (the Euro is looking a little shaky at the moment…). Regardless, the odds are that investors will pull their money out of the UK and put it in assets they regard as safer than Sterling, if only for a few weeks or months.
What that means is an almost certain fall in the value of Sterling against the dollar and Euro. It won’t be huge - and remember that the pound is already down around 12% against the dollar in the last 12 months. But it would be noticeable. And given that so much bitcoin commerce is denominated in dollars and so much comes from abroad (the majority from the US), that means a small but meaningful boost to UK businesses, merchants and contractors that do deal in bitcoin.
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