Greece Referendum: Expected Outcomes For Bitcoin and The Euro

Venzen Khaosan @venzen
July 5, 2015

With the day of Greckoning looming, takes a look at what is at stake in the Greek referendum, its expected outcomes, and the implications for the Euro and for Bitcoin.

Greek Debt Crisis Timeline

The Greek Debt Crisis began in December 2009 when several rating agencies including Fitch, Moody’s and Standard & Poor downgraded Greece for fear of government defaulting on ballooning debt. Government responded by introducing austerity packages to curb spending on public services.

In April 2010 Greece formally requested an international bailout under Prime Minister George Papandreou, and the EU, ECB and IMF provided bailouts to €246 billion by 2016, equaling 135% of Greece’s 2013 GDP.

By the end of 2013, six consecutive prime ministers had introduced a total of seven austerity packages that had led to, sometimes violent, public revolt. Increased working hours for civil servants and teachers, accompanied by salary cuts and reduced spending on hospitals and other public services were fanning social dissatisfaction. Economic conditions in Greece continued deteriorating until it became apparent to all involved that Greece had become unable to service its bailout debts.

In May 2014 the socialist Syriza Party won a European Parliament Election, and in January 2015 they won the Greek legislative election. A coalition government was formed between Syriza and the Independent Greeks party with Alexis Tsipras sworn in as prime minister. A new round of negotiations began, brokered by the Eurogroup, and seeking a deal between Greece and its creditors – the IMF, ECB and European Commission.

On 4 June 2015, Greece asked the IMF to postpone a debt installment due on 5 June until the end 30 June, and from here on the story is familiar. Alexis Tsipras and some of the ministers started grumbling about the terms being demanded in negotiations, referring to demands as “dishonorable” and “not able to stomach it“. On 28 June, Syriza called a referendum to allow Greek citizens to decide on Greece’s default on her debts. Capital controls were imposed. On the 30 June payment date, a last minute letter from Tsipras told the creditors “Oh, wait. We’ll accept your terms (with some amendments)”, and with no particular effect other than minor relief rallies in world markets. And here we are, at the weekend of the referendum.

What are Greeks Being Asked To Vote On?

The referendum asks Greeks to vote on whether to accept proposals by Greece’s creditors for additional austerity in exchange for aid funding.

The Euro area have sent a clear message to Greeks: vote “Yes”, while the Syriza-led Greek government is campaigning citizens for a “No” vote.

Here is a translation of the ballot, provided by Bloomberg:

Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on June 25 and which consists of two documents:

– The first document is called Reforms for the Completion of the Current Program and Beyond and the second document is called Preliminary Debt Sustainability Analysis.
– Those citizens who reject the institutions’ proposal vote Not Approved / NO
– Those citizens who accept the institutions’ proposal vote Approved / YES

What Are The Implications Of The Greek Referendum?

Scenario 1: “Yes” And a Third Bailout

Prime Minister Alexis Tsipras will most likely resign and new bailout talks will resume under a newly formed, and most likely, pro-European government.

Eurogroup officials will reconvene over canapes and look busy. Greece might even receive aid disbursement and much needed Emergency Liquidity Assistance (ELA) to inject cash back into the banking system. Negotiations for a third bailout package (since the start of the crisis in 2009) will begin.

Scenario 2: Greece Votes “No”

If Greek voters heed Syriza’s and Prime Minister Alexis Tsipras’s recommendation and vote to reject the bailout terms, the stage and outlook changes dramatically. With a “No” vote, the country is widely expected to exit the euro and to restart its own currency presses. However, Greece would not necessarily cast aside the euro immediately, because the country would need several weeks to start printing the drachma again.

Greek banks would soon become unable to pay collateral on European Central Bank ELA, resulting in the Greek government being unable to pay bills and its workers. It would be Greece’s decision to abandon the euro and reinstate a lesser value drachma. Capital controls would remain in place throughout (and probably long after) this transition period.

The ECB is also unlikely to withdraw support immediately since it would be interested in recouping at least some damage from government-backed assets, valued in euros, held on Greek banks’ balance sheets.

OMT Time

Investment bank Morgan Stanley foresees that this scenario will require activation of OMT, and this is where it really gets interesting. Outright Monetary Transactions (OMT) is a program of the European Central Bank that allows the bank to make purchases (“outright transactions”) in secondary sovereign bond markets (under certain conditions) of bonds issued by Eurozone member states. The program was adopted in September 2012 to allow the ECB (in their own words) “to meet the challenges of the European debt crisis,” via funds allocated to the European Financial Stability Facility (EFSF bailout funds).

If your eyes glazed over and your brain went numb while you read that, don’t despair. Readers will be pleased to learn that the industry voice, The Economist, reacted to the program with an article entitled “OMT: OTT, OMG or WTF?

Market Outlook


Prior to the referendum being called (and while negotiations were still being pursued), investment bank Morgan Stanley outlined three key scenarios in their Greek Playbook and the expected impact on the euro. The scenario whereby Greece agreed to creditor terms is no longer on the table, so the remaining two are outlined and discussed:

Scenario 1: “Yes” And A Third Bailout

With capital controls remaining in place, Morgan Stanley projects that the risk hedges placed in asset markets (stocks) by many fund managers could be unwound, resulting in money flowing back into the EUR/USD and the exchange rate, therefore, increasing.

Venzen Khaosan explains:
The driver in this case is the typical Risk-On-Risk-Off dynamic with the euro being the funding currency and the European stock exchanges, specifically, the German DAX being the hedge when risk is “on”. So, as risk subsides, fund managers sell DAX assets and, in effect, buy euros thereby lifting its exchange rate.

Scenario 2: Greece Votes “No”

Morgan Stanley believes this is “the most bearish scenario for the EUR,” [EUR/USD exchange rate]. They see activation of the ECB’s OMT, and the need for the ECB to increase quantitative easing of the euro in order to prevent contagion risk and to spur hopes of higher inflation in the Euro zone. With an increase in the supply of euros flooding the market, the EUR/USD exchange rate is likely to accelerate to the downside; and Morgan Stanley project that their year-end target of 0.9800 may be hit “much sooner.”

Venzen Khaosan explains:
Again, the risk “on” dynamic prompts fund managers to buy DAX assets; their euro denominated cash accounts are reduced (since they are selling euros and buying DAX), causing downward pressure on the EUR/USD exchange rate. Additionally, the ECB is printing more euros, with two outcomes: 1) the flood of euros reduces the exchange rate value, and 2) money printing results in consumer price index inflation, which is needed for business growth, and an explicit goal of the ECB at this time. So, a double dose of EUR/USD devaluation and, hence, their bearish outlook in this scenario.


Bitcoin trades as a commodity rather than a currency in the market, and commodities, typically, advance during times of fear and uncertainty. There is reason to believe that Bitcoin, at least sometimes, conforms to this pattern of behavior.

Observe how, when all is well for the Bitcoin ecosystem with greater adoption and positive news, the short sellers reign. Yet, let the authorities threaten regulation or make a Silk Road bust (as in October 2013) and the price chart takes flight like no other instrument in history has done.

Bitcoin is at the tail end of a multi-month consolidation and the price chart is primed for a rally. Not that it “must” advance, but nothing precludes advance, and strong advance at that, if the buyers pile in.

Scenario 1: “Yes” And A Third Bailout

Since this scenario represents an abatement of fear, it is unlikely to push price into advance. In fact, a slow continuation of the ongoing consolidation is likely until the Euro zone worries return when Portugal, Ireland, Spain and (new entrant) France start making similar sounds to what we have been hearing from Greece. Of course, the risk of being ‘bailed in’ increases for bank depositors, but strict capital control may curb a flight to bitcoin.

Scenario 2: Greece Votes “No”

In this case, Bitcoin can catch fire and a gradual or immediate rally is likely. Although the majority of Bitcoin buyers are unlikely to be Greeks (capital controls exclude them), it can be expected that many informed holders of euros will flee to the safety of Bitcoin as a store of value and transmission network. Other global investors may follow suite as the fallout of crisis in the Euro zone spreads through the developed markets and into emerging markets (BRICS).

What do readers think? Please comment below.

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Last modified (UTC): July 5, 2015 20:06

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.