According to market data firm Kaiko Research, the trading volumes between the British pound and the digital asset went to a new record high after sterling dropped on Monday, which was likely due to a rush by investors to dump their sterling for the digital asset or profit from arbitrage.
The pound fell to a new low against the dollar on Monday, having plunged to a new low the previous Friday after the UK government announced unfunded tax cuts.
The volume of transactions in the trading pair across eight major exchanges jumped to a new record high of 846 million pounds $920 million on Monday, compared to the average of 54.1 million pounds a day in 2022, according to Kaiko Research.
James Butterfill, head of research at CoinShares, said the surge was due to traders swapping sterling for digital currency.
There is a correlation between volume growth and political monetary instability, he said.
Butterfill said that there had been spikes previously in other currencies' trading volumes, such as the Russian ruble and Ukrainian hryvnia, but he had never seen such big moves in the bitcoin-sterling pair's volume.
The data shows that cryptocurrencies markets responded to the volatility in fiat currencies, according to a research analyst at Kaiko. When sterling crashed on September 26, opportunistic investors rushed to the exchanges offering BTC-GBP to try and profit via arbitrage from any mispricing ofbitcoin across the major fiat currencies, he said.
Bitfinex said it saw a significant increase in volume and trading activity on Monday, which Bitfinex analysts said underlined the potential of the biggest criptocurrency to benefit from an apparent fragility in fiat currencies. The price of virtual currency has fallen sharply in 2022 due to rising interest rates, which has caused investors to ditch riskier assets.
This year, the British pound is down 20% compared to the dollar, which is down 58% against the dollar.
On Wednesday, it was trading around $19,515 and 17,940 versus the British pound. The criptocurrency hit a two-week high against the British pound on Tuesday.