Bitcoin’s correlation with the U.S. equity market could be one reason for its current decline, but Eastern European money destabilization could push BTC as “crisis” hedge.
The world woke up to a “sea of red” which was not necessarily limited to the financial markets, as Russia declared war on Ukraine early Thursday.
The traditional financial markets along with the crypto markets were sliding bearish for the past week and saw a rapid decline early on Thursday. Apart from the crude oil prices which jumped to an eight-year high above $100, the majority of the stocks have lost over 5%.
The Russian invasion on Feb. 24 triggered the bears leading to a $500 billion crypto market sell-off, where the majority of the cryptocurrencies lost critical support to trade at a three-month low. The crypto market cap saw a 10% decline during early morning Asian trading hours, falling below the $1.5 trillion mark.
Bitcoin (BTC) is considered an inflation/crisis hedge and many expected its price to show resilience at a time of the crisis, however, Sam Bankman-Fried, the CEO of global derivative and spot crypto exchange FTX, believed BTC decline was no surprise.
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
In a Twitter thread addressing the market scenario, Bankman-Fried said that the war has created a cash crunch in the market leading to the sell-off in both traditional as well as crypto markets. The price decline in BTC is also attributed to its growing correlation with Nasdaq and S&P 500, which has reached a two-year high recently.
Bankman-Fried noted the currency destabilization in Eastern Europe, suggesting that investors in Eastern Europe could look for alternatives due to the Ukraine invasion, which could make BTC an obvious choice.
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
Bankman-Fried categorized investor mindset into two types: fundamental and algorithmic. He explained that fundamental investors look at the market situation and sentiment while algorithmic investors prefer data.
Related: Bitcoin dips 12% as Russian ruble hits all-time low against USD on Ukraine ‘military operation
The fundamentals of the market indicate a buying opportunity, since BTC is a crisis hedge, while going by the data and BTC’s correlation with the equity market, the algorithmic investors prefer selling.
Per this theory, the push and pull between the fundamental and algorithmic investors have led to a halfway mark for the current Bitcoin market.
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 Bitcoin price has started to show signs of recovery as it climbed above $35,663 from a daily low of $34,459.
