FTX CEO's View on the Overall Situation: Different Circumstances, Observe the Market Carefully, Try to Do Things That Benefit Others as Much as Possible

Amid the Russia-Ukraine conflict, FTX CEO SBF publicly unveiled his latest all-in-one cryptocurrency app - FTX Whitelabel on Twitter, but was promptly reminded by cryptocurrency trader Cobie: "Dude! War has started!" Shortly after, SBF also shared some thoughts on cryptocurrencies, stocks, and Ukraine. This is a translation of the content, original post can be found elsewhere.

SBF's View on Current Situation

This is not investment advice, but more importantly, there may be a war. This is really bad for the whole world. Forget about price fluctuations, go outside and do something helpful for others. I'm serious, do more good deeds, it will be helpful for the world.

Yesterday, the S&P 500 fell by 4%, while Bitcoin dropped by 8%. Why is this happening? The answer is obvious. Stock decline is quite reasonable, as wars are generally bad. However, how should Bitcoin react at this time?

On one hand, if the world becomes more chaotic, the amount of cash that people can freely use will decrease. Basically, Bitcoin will be sold along with stocks to pay for expenses during the war. On the other hand, this will disrupt the stability of the Eastern European currency system and lead to the search for financial alternatives.

If you are in Ukraine right now, where would you want to keep your money?

Therefore, there are two opinions in the market on how Bitcoin will react in times of war. I'm not sure if I would speculate on its decline due to fundamental factors. But it did drop, and it was a sharp drop. Why?

Let's assume there are two types of people in the market: "fundamental investors" and "algorithm followers." Fundamental investors focus on market conditions and are uncertain about the future trend of BTC/USD. Algorithm followers, on the other hand, refer to data and use past history to identify trends.

In the past year, the correlation between cryptocurrencies and stocks has been very high. This is mainly due to monetary policies affecting expectations of inflation and interest rate trends, impacting the US dollar and other fiat currencies. High inflation conditions have also led to the rise of cryptocurrencies and stocks. Therefore, algorithm traders will refer to data and make decisions based on the up to 80% correlation between Bitcoin and the S&P 500 in the past year. At this time, the Beta is 4, if the S&P 500 rises by 1%, Bitcoin rises by 4%.

However, in this context, war breaks out.

While fundamental investors remain neutral, algorithm traders believe that if the S&P 500 falls by 4%, based on historical statistics, Bitcoin should decline by 4 * 4% = 16%. The two types of investors form a tug-of-war in the market, with fundamental investors buying on major declines, while algorithm traders continue to sell, ultimately leading to an 8% drop in Bitcoin yesterday.

So, who won?

I don't know, maybe the algorithm traders won. We "think" it has to do with the financial system – algorithm traders base their decisions on market regularities, but perhaps the main reason is simply to fund the war by selling off all assets. However, maybe not, it could just be based on changes in monetary policy.

However, this market change is not due to monetary policy. Therefore, Bitcoin only dropped by 8%, half of what algorithm traders predicted at 16%. This means they will adjust their models, as Bitcoin's drop was not as expected, marking the start of a new cycle. Maybe that's it.

If the above reasons are not the true influencing factors, "liquidity" is another possibility. If you are a risk-averse investor, you may sell off all your assets because you don't know what the future holds. This also leads to a lack of liquidity in the market, but who will step in to take over these unstable assets?

Regardless, no one knows what will happen, anything is possible, I'm not implying that I know what will happen. But I also believe that we are in a different situation from the past year and a half, we need to observe how the market will develop.

Once again, I urge you to do more good deeds for others. Our world needs them.