FTX CEO Sam-Bankman Fried (SBF) recently spoke with Global Macro Investor CEO Raoul Pal on the state of the macro economy, and how it pertains to crypto. He suggested that there’s a good chance the crypto market has bottomed already and that the unwinding of leverage is just about finished.
The Macro Perspective
During the interview on Friday, SBF stressed that crypto’s downturn has not occurred in isolation. “You see very similar things happening all over the ecosystem,” he said, noting that there’s been a retrenchment of gains made over the past year across all markets.
The cross-market downturn, in his view, can be chalked up to the Federal Reserve following through on its faster-than-expected interest rate hikes. In fact, he believes the market has overshot to the downside.
“At this point, the current we’ve seen in markets I think is out of line with what three percent interest rates would normally represent,” he said.
The Fed’s commitment to monetary tightening is its aggressive response to rising inflation in the United States. Fed Chairman Jerome Powell and other central bankers paid little mind to soaring prices last year, thinking it a “transitory” issue that would heal as supply chains restored themselves.
May’s annual inflation reading marked another 40-year high at 8.6%, while June’s figure is scheduled for release next week. Powell stated last month that he would not consider looser monetary policy unless he sees “compelling evidence” that inflation is on the way down.
From a market perspective, SBF thinks inflation was a bit of a red-herring – the effect of which is being completely reversed with central bank action. “To some extent, it’s just a stock split in the US dollar…the whole thing is a little bit of a sideshow,” he said.
The CEO thinks the more recent economic pullback in which people are “producing less” is what matters most. Such activity is less correlated with financialized markets.
Regarding crypto specifically, the billionaire does not believe Bitcoin’s decline below $30,000 was driven by anything industry-specific. Even Terra’s collapse had a limited “contagion effect” on the broader market, despite some theories to the contrary.
That’s not to say SBF underestimates the impact of contagion on the industry. His firms FTX and Alameda have pledged hundreds of millions of dollars to bail out failing crypto companies and stem further market damage. On Wednesday, he claimed that he still had billions more on the table.
Yet that money may not be entirely necessary. “I don’t see any particular reasons that we couldn’t be at the bottom,” he told Pal. “I think the unwinding that had to happen has happened.”
However, the CEO warned in a Forbes interview on Friday that there are many existing “third-tier” exchanges that are “secretly insolvent.” He also highlighted the ever-present threat of miners being forced to sell their Bitcoin as their revenues take a nosedive. Core Scientific, for instance, forced to sell over 7000 Bitcoin in June, despite producing little more than 1000 in the same timeframe.
Raoul Pal’s Take
The macro-guru Raoul Pal shared SBF’s view on crypto’s correlation with the rest of the market. “This is not a crypto event – this is just a liquidity event,” he said.
According to Pal, the Fed’s creation of “demand destruction” has shifted the market’s fears away from inflation, and towards a “growth collapse.” US GDP growth already fell by 1.4% in Q1, and chairman Powell is already recognizing recession as a “possibility.”
That said, the CEO sees this development as bullish for longer-duration assets like crypto and tech, both of which “got smashed” in recent months.