It's been a weird few days in the markets -- both crypto and non-crypto alike. But honestly, it's all starting to feel a little familiar ...
A thread about efficiency.
A thread about efficiency.
(not investment advice!)
Let's flash back for a moment to my favorite day to bring up on Twitter: March 12, 2020. At this point, we all know roughly what happened there:
- the world decided COVID was bad
- equity markets crashed
- crypto markets crashed even more (liquidations, etc. -> big momentum)
- the world decided COVID was bad
- equity markets crashed
- crypto markets crashed even more (liquidations, etc. -> big momentum)
What followed, though, was a *complete* recovery for equities -- which were still leading the crypto markets, and therefore led to a complete recovery for crypto!
This makes sense, on some level -- the world figured out a way for its economic prospects to grow despite COVID.
This makes sense, on some level -- the world figured out a way for its economic prospects to grow despite COVID.
Separately, I think crypto was the beneficiary of some follow-on "we're bored in lockdown so we're buying all the DOGE"-type effects over the next months, but the thing I'm establishing right now is the market's propensity to recover from COVID-driven moves.
Cool -- but COVID, obviously, is not over, and new COVID-related news has continued to impact the markets in both directions since mid-2020.
Remember when the Delta variant caused a 5% SPX crash in May 2021? That was undone too, but this time over weeks instead of months.
Remember when the Delta variant caused a 5% SPX crash in May 2021? That was undone too, but this time over weeks instead of months.
BTC's response to that Delta-led equities move was a little more complicated since it triggered the massive sell-off because of liquidation-based momentum, the one down to $30k. BTC still recovered! But it took 2ish months instead of 2ish weeks.
(FWIW I am not making any claims here about how bad these things were for the world or whatever -- only talking about market impact, I understand that Delta caused a lot of problems.)
That brings us to Omicron. News started spreading about 5 days ago that a new, potentially faster-spreading, potentially-who-knows-maybe more virulent than the others.
The market spoke quickly, with equities falling a few % and BTC even more.
The market spoke quickly, with equities falling a few % and BTC even more.
This should be familiar -- BTC acts like a risk-on asset for these things and as such has a negative response to bad COVID news. As has happened every time! And it moves with a >1 beta, as has always happened -- both because of some liquidations ...
... but also, at this point, because it's what people expect. It happened in March 2020, it happened for Delta (and Alpha, though I skipped that because it was less intense), so why wouldn't it happen for Omicron? The market is learning!
What's the other thing that has always happened, though?
COVID: took 6 months to recover
Delta: took 2 weeks/months to recover
It always recovers! (Assuming nothing, like, cataclysmic happens I guess).
COVID: took 6 months to recover
Delta: took 2 weeks/months to recover
It always recovers! (Assuming nothing, like, cataclysmic happens I guess).
And, in particular, each time, it has recovered more quickly than the last.
So over the weekend when Omicron started looking not cataclysmic after all ... well, BTC recovered. All the way! Not even 4 days this time.
So over the weekend when Omicron started looking not cataclysmic after all ... well, BTC recovered. All the way! Not even 4 days this time.
And what about this bit of news about the vaccines not being that effective against Omicron?
I shouldn't have to tell you this, but ...
I shouldn't have to tell you this, but ...
... it looks awfully familiar, but this time it only took a few hours.
This can't keep happening. Eventually the effect-to-reversion time just keeps getting shorter and shorter until it's just instant -- but that's the same as no effect at all!
Put a different way -- eventually the market learns the net effect is ca. 0, so no one ever sells.
Put a different way -- eventually the market learns the net effect is ca. 0, so no one ever sells.
A market where moves like this don't happen is called "efficient" -- on some level, if the reversion over the weekend was 100% predictable, any time BTC spent e.g. under $56k didn't "make sense" -- it was always gonna go back up. That makes the market "inefficient."
Over time as more traders understand these kinds of effects, the market will, as a natural consequence, get more and more efficient. We've seen that as recently as today!
It means that figuring these kinds of trades out *early* matters a lot more than it used to.
It means that figuring these kinds of trades out *early* matters a lot more than it used to.
That's what Alameda is always trying to do. We figured that the timescale for today's COVID price cycle would be quicker than last time -- but hours wasn't what we were thinking :P
We'll need to update for the (probably inevitable) next bit of COVID news that rocks the market.
We'll need to update for the (probably inevitable) next bit of COVID news that rocks the market.
It's hard enough to be a great "level one" trader -- figuring out what's happening and reacting. The next level up is even harder as it requires figuring out how others will react to what's happening and reacting to *that*.
But it's where the $ is, so it's where we'll be, too.
But it's where the $ is, so it's where we'll be, too.
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