SBF: Some thoughts on BTC, Ukraine, and stocks

Note: The original author is SBF, CEO of FTX.

Some thoughts on crypto, Ukraine, and stocks.

Not financial advice.

More importantly, there might be a war. That would be really bad for the whole world, forget about the price, go out and do something good for some people.

Seriously, do something good, the world will need it.

I'll hold.

The S&P 500 is down about 4% over the past day, while BTC is down about 8%.

Why? Well, I mean, the answer is obvious.

It makes sense that stocks are falling. Wars are bad in general, so what should BTC do here?

On one hand, if the world gets worse, people will have less cash to use. Basically, they will sell BTC (along with stocks, etc.) to pay for the war.

On the other hand, this could destabilize Eastern European currencies and, more generally, the entire Eastern European financial system.

This means they may be looking for alternatives.

If you were in Ukraine right now, would you trust the currency you have in your hands?

So there are two theories as to what should happen to Bitcoin right now. I'm not sure I would guess based on fundamentals that it will go down.

But it fell a lot! Why?

Well, let's say there are two kinds of people in the world: fundamental investors and algorithm followers.

Fundamental investors take a look at the market conditions and are unsure which direction BTC/USD should go.

And the algorithm followers will look at the data and then historically see what the trend will be?

Well, over the past year, the correlation between crypto and the stock market has been extremely high. The main reason for this is monetary policy: changes in inflation and interest rate expectations move the dollar and other fiat currencies.

More inflation --> crypto+ stocks rise.

So the algorithm looks at the data and makes a decision based on BTC’s 80% correlation with the S&P500, with a beta of 4 (i.e. if the S&P500 moves 1%, BTC moves 4%).

Then, the war happened.

Fundamental investors will remain neutral, but algorithmic investors believe that when the S&P 500 falls by 4%, based on historical research, they expect BTC to fall by 4*4%=16%.

There was push and there was pull, fundamental investors were buying, algorithmic investors were selling, and on net, BTC ended up somewhere in between before falling 8% on the day.

So, who is "right"?

Well, I don't know. Maybe the algorithmic investors are right, maybe we think this is about the financial system, but in fact the main impact is just selling off everything to finance the war.

But perhaps they are not: perhaps their judgment is based on changes in monetary policy.

But this is not a monetary policy move.

So BTC fell 8%, half of the 16% predicted by algorithmic investors.

At this point, their model is updated (BTC falls 4 times less than they predicted), and then a cycle begins.

Maybe.

Or maybe the real effect here has nothing to do with those things.

Maybe it's liquidity. If you're risk averse, maybe you're selling whatever you own right now because who knows what's going to happen.

The market lacks liquidity now, who would buy unstable assets?

No one knows what will happen anyway – anything can happen, and I’m not trying to imply that I know what will happen.

But I also think that we're probably in a new administration compared to the last year and a half, and we'll have to see how things play out here.

Again, go do something nice for someone. The world might need it right now.