FTX CEO on the current market crisis

  • Sam Bankman-Fried said Eastern European countries could consider Bitcoin as an alternative to their destabilized currencies
  • He also examined the opposing positions between fundamental and algorithmic investors

Early Thursday, reports of a Russian military invasion of Ukraine caused Bitcoin and other crypto markets to slump. Stock markets also fell along with cryptocurrencies when Russia launched what President Putin called a demilitarization operation in Ukraine.

In a recent Twitter Thread has FTX CEO Sam Bankman-Fried shared his view on the massive correction of the crypto markets. According to information from CoinMarketCap Bitcoin fell to $ 34,459. The markets have recovered to some extent and the ticker is currently trading at $35,482.

Conflicting opinions on the price of Bitcoin

First, Bankman-Fried examined two scenarios. He explained that on the one hand, the escalation of the crisis means that there is less free money, as people “paying for the war ” which leads to a widespread sell-off of assets, including Bitcoin and stocks.

On the other hand, he said that Russia’s escalated military action would probably destabilize Eastern European currencies and potentially turn BTC into a crisis hedge. Therefore, he theorized that the financial systems in the region might as well look for a way out (Bitcoin) for their assets.

On the other hand, this is likely to destabilize Eastern European currencies. And more generally the Eastern European financial systems. Which means you could be looking for alternatives. If you were in Ukraine now, who would you trust with your money?”, he explained.

Given these opposing scenarios, he said that both sides of the conversation about how Bitcoin should behave have a reason for argument.

The back and forth between two groups of investors

Explaining that the fundamentals did not indicate that Bitcoin would crash, the FTX CEO grouped investors into two groups: fundamental and algorithmic.

An algorithmic investor is the one whose trades would be based on historical data patterns. Recent estimates show that Bitcoin has a correlation of up to 80% with stocks. So when algorithms see stocks fall, they expect Bitcoin to crash as well.

The fundamentals, on the other hand, remain uncertain in which direction it will go. The back and forth that arises between these two groups causes Bitcoin to falter halfway, as it did today.

“Fundamental investors are neutral, but algorithmic investors see that the S&P500 is falling by 4%, and therefore expect BTC to fall by 4*4% = 16% based on historical studies. There is a push and a pull, with fundamental investors buying and algorithmic investors selling; net BTC ends up halfway between, with a minus of 8% on that day”, he said.

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