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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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any losses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
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