Bitcoin’s present slump could be due to its correlation with the US stock market, but Eastern European money turmoil could force BTC to become a “crisis” hedge.
As Russia declared war on Ukraine early Thursday, the globe awoke to a “sea of red” that was not limited to financial markets.
The regular financial markets, as well as the crypto markets, have been trending downward over the previous week, with a sharp drop early on Thursday. Aside from crude oil prices, which have risen to an eight-year high above $100, the majority of stocks have fallen by more than 5%.
The bears were prompted by the Russian invasion on February 24, resulting in a $500 billion crypto market sell-off, with the bulk of cryptocurrencies losing critical support and trading at a three-month low. During early morning Asian trading hours, the crypto market cap dropped by 10%, going below $1.5 trillion.
Bitcoin (BTC) is seen as an inflation and crisis hedge, and many expected its price to remain stable during the crisis. However, Sam Bankman-Fried, the CEO of global derivative and spot crypto exchange FTX, believes BTC’s decrease is unsurprising.
4) It makes sense that stocks are down. War is, generally, bad.
What should BTC be doing here?
Well, on the one hand, if the world gets shittier, people have less free cash.
Basically, selling BTC–along with stocks, etc.–to pay for war.
— SBF (@SBF_FTX) February 24, 2022
Bankman-Fried remarked in a Twitter thread about the market situation that the war has produced a liquidity shortage in the market, leading to sell-offs in both regular and crypto markets. BTC’s price decrease can also be ascribed to its increasing correlation with the Nasdaq and S&P 500, which has recently set a two-year high.
Bankman-Fried mentioned Eastern Europe’s currency destabilisation, implying that investors in the region may be looking for alternatives as a result of the Ukraine invasion, with BTC being an obvious candidate.
5) 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 to alternatives.
If you were in Ukraine right now, where would you trust your money? pic.twitter.com/eRiaPeoiDr
— SBF (@SBF_FTX) February 24, 2022
Investor thinking is divided into two categories by Bankman-Fried: fundamental and algorithmic. Fundamental investors consider market conditions and mood, whereas algorithmic investors prefer data, according to him.
The market fundamentals signal a buying opportunity, as BTC is a crisis hedge, but algorithmic investors prefer to sell, based on data and BTC’s correlation with the equities market.
According to this view, the present Bitcoin market has reached a midway point due to the push and pull of fundamental and algorithmic investors.
11) There's a push and a pull, with fundamental investors buying and algorithmic investors selling; on net, BTC ends up halfway in between, down 8% on the day.
So, who's "right"?
— SBF (@SBF_FTX) February 24, 2022
The price of Bitcoin has begun to recover, having risen above $35,663 from a daily low of $34,459.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
