Why Is Bitcoin Taking A Much Harsher Beating From Russia's Ukraine Invasion Than Stocks?

FTX CEO Sam Bankman-Fried in a Twitter thread on Thursday speculated on why Bitcoin's BTC/USD market price is taking such a harsher beating from the Russia-Ukraine crisis compared to equities.

What Happened: Bankman-Fried noted it makes sense for stocks to be down in the aftermath of Russian forces invading Ukraine as "war is, generally, bad" but the situation is not as straightforward when it comes to Bitcoin.

The founder of the cryptocurrency exchange desk FTX noted that, on one hand, people have less free cash when the "world gets sh*ttier" due to the chaos, and people sell-off assets to "pay for war." At the same time, the Russian military action would destabilize Eastern European currencies, forcing people to think of alternatives. "If you were in Ukraine right now, where would you trust your money?" he asked.

Based on this, the cryptocurrency entrepreneur noted that fundamentals don't justify this sell-off in Bitcoin — but algorithmic trades are quite popular in cryptocurrency trading.

Algorithm-based trades utilize historical trends — which would explain the current price movement in Bitcoin.

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.

— SBF (@SBF_FTX) February 24, 2022

"[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%)," Bankman-Fried noted.

Algorithm-reliant traders are selling on the news, based on this principle, while those counting on fundamentals are buying, the billionaire said. "On net, BTC ends up halfway in between."

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?

— SBF (@SBF_FTX) February 24, 2022

Why It Matters: Russia President Vladimir Putin announced the country was conducting a "special military operation" in Ukraine on Wednesday night (eastern time), following which multiple explosions were heard in several Ukrainian cities, including capital Kyiv.

Cryptocurrencies including Bitcoin, Ethereum ETH/USD and Dogecoin DOGE/USD took a harsh beating alongside U.S. futures and global markets.

Ethereum co-founder Vitalik Buterin who was born in Russia criticized Putin's actions and wished "glory" on Ukraine in a tweet Wednesday night.

Price Action: Bitcoin traded 8.7% lower at $35,331.65 at the time of writing on Thursday. Ethereum traded 12.5% lower at $2,371.25.