FTX founder and CEO Sam Bankman-Fried says the recent price volatility of Bitcoin (BTC) is caused by a tug-of-war between two different classes of investors.
The billionaire tells his 585,000 Twitter subscribers that the top crypto asset by market cap’s price action can be attributed to a push and pull going on between fundamental investors and algorithm followers.
“Let’s say there are two 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.”
Bankman-Fried says these two types of investors have differing trading tactics when it comes to navigating the correlation between crypto assets and equities.
“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 [means] crypto and equities up vs USD.
And so algorithm [followers] 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%)…
Fundamental investors are neutral, but algorithmic investors see the S&P500 go down 4%, and so expect BTC to go down 16% based on historical studies.”
The CEO says that the tug-of-war between these kinds of traders means Bitcoin’s price ends up halfway in between.
“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.”
While Bitcoin was down 8% on the day earlier when it was trading under $35,000, it has since recovered and is exchanging hands at $35,962 at time of writing.
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