Conversation

SBF
@SBF_FTX
Replying to
@SBF_FTX
6) So there are arguments both ways for what should be happening to BTC right now. I'm not really sure I would have guessed it would go down based on the fundamentals. But it is down, a lot! Why?
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SBF
@SBF_FTX
7) Well, let's say there are 2 types of people in the world: fundamental investors and algorithm followers. Fundamental investors look at the situation and are uncertain which direction BTC/USD should move. Algorithm followers consult the data. Historically, what's the trend?
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SBF
@SBF_FTX
8) Well, over the last year, there's been a really high correlation between crypto and equities. The main reason is monetary policy: moves in expectations of inflation and interest rates change USD and other fiat currencies. More inflation --> crypto + equities up vs USD.
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SBF
@SBF_FTX
9) And so the algorithms look at the data, and decide based on that BTC should be 80% correlated to the S&P500, with a beta of 4 (i.e. if S&P500 moves 1%, BTC moves 4%). Then war happens.
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SBF
@SBF_FTX
10) Fundamental investors are neutral, but algorithmic investors see the S&P500 go down 4%, and so expect BTC to go down 4*4%=16% based on historical studies.
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SBF
@SBF_FTX
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"?
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SBF
@SBF_FTX
12) Well, I don't know. Maybe the algorithmic investor is: maybe we *think* this is about financial systems but actually the dominant effect is just everything selling off to fund wars. But maybe they're not: maybe they're basing their judgements on monetary policy moves.
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SBF
@SBF_FTX
13) But this isn't a monetary policy move. So BTC goes down 8%, half of the 16% that the algorithmic investors predict. At which point their model updates a bit--BTC went down less than the 4x they predicted--and a cycle begins. Maybe.
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SBF
@SBF_FTX
14) Or maybe the real effect here has nothing to do with any of those things. Maybe it's liquidity. If you're risk averse, maybe you're selling whatever you have right now, because who knows what'll happen. And markets are illiquid right now--who's buying volatile assets?
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SBF
@SBF_FTX
15) Anyway, who knows what will happen--anything could and I don't mean to imply that I know what will happen. But I also think we're probably in a new regime than we've been in the last year and a half. We'll have to see how things work here.
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@SultanDman
Replying to
@SBF_FTX
Something nice? Stop hunting down all your retail traders on your platform and taking all their money.
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