ETH/GBP trade pairs up Ether, the Ethereum blockchain platform’s native cryptocurrency, with the UK’s GBP fiat currency. Ether, despite having matured since it launched in 2012, is still highly volatile. This also reflects the wider cryptocurrency market. As the currency of one of the world’s most developed economies, GBP, despite Brexit, is relatively stable. As a result, an ETH GBP trade means the focus is very much on the base, cryptocurrency side of the pair due to average daily volatility which is around ten times as high as that of the GBP.
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Successfully trading the Ethereum/GBP pair involves understanding Ether and the Ethereum platform, and how they are intrinsically linked to the wider context of the cryptocurrency market and blockchain sector. Understanding the dynamics behind the pound sterling’s movements is also important, if to a lesser extent.
What is Ethereum and its Ether Cryptocurrency?
Ethereum is a blockchain platform that independent developers can use to build smart contracts and decentralised applications using its computing power. This computing power is paid for in Ether, the cryptocurrency that incentivises the participation of the peer-to-peer network that collectively runs Ethereum by contributing its processing power. The advantage of building a decentralised application (DAPP) on a blockchain platform such as Ethereum is that there is no central point of failure, and as such, is very secure. DAPPs running on Ethereum can never go offline, and personal data and content remain under the full ownership and control of owners and creators. There are also no sets of rules imposed by a third party authority to be observed, as would be the case in the Play and App Stores or YouTube etc.
For example, on a theoretical Ethereum powered Facebook equivalent, there would be no user data privacy concerns. Also, pages publicising a band would not generate profit for the Ethereum “Facebook,” but all benefits, in the form of Ether or ‘soft’ incentives, would be shared between the artists and their audience only, with just a tiny fraction syphoned off to incentivise the computational nodes that provide Ethereum’s computing power.
What is GBP?
The British Pound or Pound Sterling is one of the world’s most important traditional currencies and is the 4th most traded currency after the U.S. Dollar, Euro and Japanese Yen. The GBP is one of the most stable currencies. This is due to the historically stable political climate of the United Kingdom and its economy, most notably the financial services industry. The past few years has seen some uncertainty and volatility with this currency as a result of the referendum that led to Brexit, or the UK leaving the European Union.
ETH and GBP – Main Differences
The influences that drive cryptocurrency price direction are very different from those that influence fiat currencies such as GBP, which is crucial for anyone trading the Ether/GBP pair to understand. Despite being very different in nature to Bitcoin, Ether’s price direction, like that of all of the major cryptocurrencies, is tightly correlated to that of Bitcoin at this stage of the crypto markets maturity. Another way of looking at it is that all cryptocurrencies, including Bitcoin, are generally most influenced by wider public sentiment towards the future adoption of cryptocurrencies. News around developments that affect cryptocurrencies’ traction, such as regulation or encouraging signs of mainstreaming, tend to drive the value of cryptocurrencies, including Ether, up.
More specifically for Ether, the volume of decentralised applications being run on the Ethereum blockchain also influences demand for the cryptocurrency and, therefore, price. This tends to influence longer term price trends rather than daily movement. Over the longer term, competition from other blockchains offering comparable functionalities to Ether will also affect Ethereum’s user traction and Ether’s price.
The average daily volatility of Ether is, also like that of other cryptocurrencies, much higher than that of fiat currencies such as the GBP. This means that when trading mixed cryptocurrency to fiat currency pairs, it is the price direction of the crypto half of the pair that largely drives returns and losses.
The GBP’s relative value against other fiat currencies is influenced by the strength of the UK economy and the monetary policy of the Bank of England. This forms part of the complex matrix between the economies and monetary policy of the nations, with relative strength judged by financial market participants. The USD is the fiat currency that cryptocurrencieslike Ether are priced against as a base exchange rate. This means that the GBP half of the ETH/GBP pairing is also influenced by the GBP/USD pairing. However, with GBP to USD daily volatility averaging 0.6%, around 10 times less than ETH/USD volatility, it is Ether’s price direction that comprehensively dominates the ETH/GBP pairing.
How to Trade ETH/GBP
While traders looking at ETH/GBP chart positions can also benefit, to an extent, by monitoring GBP/USD trends and developments, the vast majority of focus should be on ETH. The GBP’s relative strength against the USD will only make an incremental difference. For intraday trades especially, this is likely to be negligible.
The biggest drivers of Ether’s exchange value are, as already mentioned, news-based sentiment around future rates of cryptocurrency adoption in the shorter term, and longer term usage of the Ethereum platform – generally, and in relation to competitor blockchains, such as EOS.IO.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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.
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