War or bots? Trading with algorithms could lead bitcoin to the fall of this Thursday

Bitcoin registered a sudden drop last Thursday, February 24, after the Russian invasion of Ukraine began. However, for some analysts and traders, the confrontation in Europe was not the dominant cause of bitcoin’s pullback, but the automation of trading decisions, through software robots or bots.

In a twitter thread This Thursday, the founder and CEO of decentralized exchange FTX, Sam Bankman-Fried, attributed the recent volatility of bitcoin to a confrontation between two types of traders, those who are guided by the fundamental parameters of the network and those who called “algorithmic traders”.

In the case of the drop in shares before the announcement of the war in Europe, Bankman-Fried affirms that, in general, war is bad for business and that in a situation of less liquidity, the sale of shares seems a logical decision. . The sale of BTC would be explained by its strong coupling with traditional assets. However, the trader points out that the assessment of the role of correlation is different for different types of traders.


Let’s say there are two types of people in the world: fundamental investors and algorithm followers. Those who are guided by fundamentals, look at the situation and are not sure in which direction the BTC/USD should move. The followers of the algorithm query the historical data.

FTX Sam Bankman-Fried.

Algorithm-following traders look at the data and have decided that there is an 80% correlation between BTC and the S&P 500, and have also set a value of 4 for the beta parameter, says Bankman-Fried. This means that if S&P 500 varies 1%, BTC should vary 4%.

In the case of the stock down, the S&P 500 is down 4%, so algorithmic investors expect bitcoin to drop 16% and start selling on that expectation. A bid is then established between algorithmic investors, with a strong selling rate, and those attached to the fundamentals, who begin to buy, says Bankman-Fried. “The price of BTC turned out halfway down 8%,” the trader notes.

With the increasing automation of trading, bots make immediate decisions according to an already established schedule. This could explain the sudden drop in the price of bitcoin last Wednesday the 23rd, as reported by CriptoNoticias.

In less than 24 hours, BTC recovered the losses of last Thursday. Source: TradingView.

The chart above shows the price drop on the night of the 23rd, followed by a vigorous rally in the price of bitcoin this Thursday, which places its price above $39,000 at the time of writing this article.

Regarding other reasons associated with the fall in the price of bitcoin, beyond attributing it to the war, CriptoNoticias published an analysis this Thursday that includes the situation of the various markets and the global economic outlook, as well as opinions of experts in economy and trading. . For the economist José Miguel Farías, it is not easy to predict the behavior of the markets, especially if there are hundreds of possible scenarios, with variables that are not controlled.

On the other hand, analyst Eduardo Gavotti points out that what mainly affects bitcoin is not the geopoliticalbut the changes in monetary policy that have affected the financial markets.