The CEO of FTX comments on the stock market crash after the invasion of Ukraine

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

Early Thursday morning, reports of an invasion of Ukraine by the Russian military caused Bitcoin and other crypto markets to plunge. Stock markets also fell along with cryptocurrencies as Russia began what President Putin called a demilitarization operation in Ukraine.

In a recent twitter thread, FTX CEO Sam Bankman-Fried shared his views on the massive correction the crypto markets saw. According to data provided by CoinMarketCap, Bitcoin fell as low as $34,459. The markets have recovered somewhat and Satoshi Nakamoto’s invention is currently trading at $35,482.

Mixed feelings about the price of Bitcoin

To begin with, Bankman-Fried explored two scenarios. He explained that, on the one hand, the escalation of the crisis means that there is less free money, since people have to “pay for the war“, resulting in the sell-off of assets, including Bitcoin and stocks.

On the other hand, he said that Russia’s escalated military action would likely destabilize Eastern European currencies, possibly turning BTC into a crisis hedge. As such, he theorized that the region’s financial systems might also be looking for an outlet (Bitcoin) for their assets.

On the other hand, this is likely to be destabilizing for Eastern European currencies. And, in general, for the financial systems of Eastern Europe. Which means they could be looking for alternatives. If you were in the Ukraine right now, who would you trust with your money?” said.

With these contrasting scenarios, the two sides of the coin of “how Bitcoin should behave” are shown.

The tug of war between two investment groups

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

The algorithmic trader is one whose trades would be based on historical data patterns. Recent estimates show that Bitcoin shows up to 80% correlation with stocks; therefore, when algorithms see stocks fall, they expect Bitcoin to crash as well.

The fundamentals, on the other hand, remain unsure which way it would go. The tug of war between these two groups causes Bitcoin to stop midway as it has today.

“Fundamental investors are neutral, but algorithmic investors see the S&P500 down 4%, so they expect BTC down 4*4% = 16% based on historical studies. There is a tug of war, with fundamental investors buying and algorithmic investors selling; in the end, BTC ends up halfway down 8% on the day”He suggested.