Sam Bankman-Fried, the CEO of global derivative and spot crypto exchange FTX has said that the crypto market’s correlation with the United States equity market explains the recent sea of red.
The executive believes that the fall in the price of Bitcoin in wake of the Russian invasion of Ukraine is not surprising despite expectations of Bitcoin’s resilience at a time of the crisis.
Traditional financial markets witnessed a rapid decline on Thursday as the conflict intensified and the price of crude oil jumped to an eight-year high, hitting $105 earlier today.
After a $500 billion crypto market sell-off, the crypto market cap witnessed a 10% decline with most major cryptocurrencies hitting a three-month low.
In a series of Tweets, Bankman-Fried explained that war creates a cash crunch in the market which forces investors to sell stocks and assets including cryptocurrencies to pay for the war.
The sell-off coupled with BTC’s correlation with Nasdaq and S&P 500 means that the crypto markets decline is well within reason.
However, this downturn might be temporary as Bitcoin represents an opportunity amid the currency destabilization in eastern Europe, the expert said:
“On the other hand, this is likely destabilizing for Eastern European currencies. And, more generally, for Eastern European financial systems. Which means they might be looking for alternatives. If you were in Ukraine right now, where would you trust your money?"
Bankman-Fried further explained that there are two types of investors during a crisis: fundamental and algorithmic. Fundamental investors invest based on the situation and sentiment of the market while algorithmic investors depend solely on data.
Therefore, currently, the fundamental investors are buying Bitcoin as a hedge against crisis while algorithmic investors are selling to avoid losses caused by BTC’s correlation with the equity market. The push and pull between the two types of investors led BTC to the halfway in between, down 8% yesterday, the CEO added.