WBD222 Audio Transcription

Is Bitcoin Trading a Dirty Business? With Willy Woo

Interview date: Sunday 10th May 2020

Note: the following is a transcription of my interview with Willy Woo from Hypersheet. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I am joined by Willy Woo, an on-chain analyst and the co-founder of Hypersheet. We discuss Bitcoin trading, the rise of the unregulated, high leverage futures platforms and if trading is damaging to the growth of Bitcoin.

“In a very immature, thinly traded asset like Bitcoin, it takes just a few guys with all the ammo in the world to move it anywhere they want to take out the most traders. It’s a lethal combination.”

— Willy Woo

Interview Transcription

Peter McCormack: Evening Willy, how are you?

Willy Woo: Hey Peter, really good. It's nice over here in New Zealand at night, a few days from the halving.

Peter McCormack: I've never got over to that part of the world. I really want to and I've got to do it at some point. Listen, look, I've been meaning to get a trader on the show for a while but I haven't for a couple of reasons. I've got my own PTSD from thinking I was a trader in 2017, making and then losing a lot of money. But also, my show's for beginners and I kind of think trading is an advanced skill, and I've put it off for a while.

But I think actually, today it will be good to do a bit of a trading 101, as we're going to have new people coming into the market. They're going to be tempted to go out there and start trading, so at least let's arm them with a little bit of knowledge. So listen, before we do that though, what the hell happened with the dump last night, man? I thought we're heading into the halving? We were like in and out of $10k, perhaps we'll get to $12k by the halving, and then boom, we crashed. What's going on there?

Willy Woo: Oh gosh, since the last few months really, I haven't really looked very closely at the market. When I say closely, I mean short time cycles. When you're trading, people can trade long time cycles you put money in, you sit on it, maybe you sit on it for a year, maybe you sit on it 14 years and that's a very slow kind of trade, which you might call an investment, but most people sell out. So therefore it is a trade.

Then we can go right down into these kind of time cycles that degen Bitcoin traders trade, and even down to the three minute or five minute candle. So I'm not really looking at the short-term right now. I used to, but that is a thing that you look at minute by minute, hour by hour and one thing I will say about what the market is right now is that Bitcoin's a very easy to manipulate market. So if you have, say I think the figure would be around $30 million - $50 million and you can put that on a futures or derivatives exchange as collateral, on BitMEX you can go up to a 100x, but realistically you can go up to 10x.

So suddenly, with $50 million, you're wielding half a billion dollars of leverage power and of course, you can start to push the price around with that. If buyers are buying and you've got half a billion dollars of sell power you can just put a top on it. So what happens in the Bitcoin market now is that there's probably a crowd of about 12 entities there with enough capability ammo. I call it ammo, just how much buy and sell power you have to just start to squeeze people out of their position.

So if you were to look at the very short-term price of Bitcoin, it is this just random walk of price, and it randomly walks in the direction which it's going to take out the most traders. If everyone's going long, the price is going to go short because those guys will be liquidating and these are payday for those guys that are pushing the price down. So trading in the very short-term is a very strategic thing between traders and whoever's got the most ammo will win. It is like American football, who's got the strongest linebackers, push that ball around, you get an advantage.

So I can guarantee you what happened with that crash is exactly the same strategic movement, and when you're trading short-term, you're looking at all the signs of what the market is doing, the little guys and looking for clues what the big guys are about to do.

Peter McCormack: Right, okay, that kind of makes sense. But can they actually impact the long-term trend or is the long-term trend protected against this? This is about those who are leveraged, who you can stop out. Like you can't stop me out because I just buy and I hold, right? I keep it in a hardware wallet. So nobody can stop me out of a trade because I just buy and hold. Is this all based on who is in leveraged positions who've got some kind of margin call or some kind of a stop?

Willy Woo: Yeah, okay, that's a real good question. I like to talk about Bitcoin in terms of the fundamentals, and that's my field, I look at the fundamentals. So if you've got a long-term trend of more people in the world liking Bitcoin as an asset to hold, then you've got a long-term incoming demand and my field is looking on the blockchain to gauge that because you can pick... Obviously when you buy Bitcoin, you buy it and you put it into your wallet.

So you see that on the blockchain as a transaction that's moving into a wallet and you can engage an idea of the demand. So there's this sort of adoption curve of Bitcoin as the world wakes up to it and it follows, typically with new technology, an S-curve. So this is sort of this organic dynamic that's happened between long-term investors coming in and then the sell side, the organic supply side is coming from miners introducing new coins that are being minted into the supply. So the interaction between people coming in, to hold as an asset class and the supply side for miners because that's an organic price. Then inside this, you've got all of us gamblers who are traders thinking they can make a buck and this is the game we were talking about earlier

 So you can kind of see there's like an organic price chart and then superimposed on top of that organic price chart is this sort of apeshit, wild, strategic game there that's being played and it seesaws and zigzags. So in the short-term, yes, definitely, it has huge impact on the price, but long-term, if you filter out those zigzags less so, but not absolutely not so. There will be an impact from that trading which was, essentially what I tweeted, was it yesterday, which is that all of this trading activity that's happening generates trading fees. We've got a number of futures exchanges all generating a billion dollars of volume per day.

So I haven't checked the latest figures, but I think we're talking in the $10 billion plus amount of volume being traded on these short-term leverage accounts exchanges. They will generate a lot of fees! So those fees are just a tax on the traders. The exchange earns those fees and then what do they do? They sell it on the market. They sell it for USD fiat money. So now you've got this other supply side that's being generated, unlike the miners who are burning electricity creating new supply, diluting people and then selling it into the markets, you've got also the exchanges which are tax agents of the trading activity taking that as revenue and then selling Bitcoins back on the market as another sell side pressure.

So what you end up seeing is that although the zigzag is from trader gains, you get this fundamental aspect that's being produced from this activity, and that's an additional sell pressure. There's mining sell pressure and now there's exchange sell pressure from that activity, and that is a fundamental impact, and that will affect the returns you get as a hodler long-term.

Peter McCormack: All right, well let's dig into that. So I've talked to Luke Martin about this the other day because people were talking about the sell pressure from miners, and I was like, "Well I think there's sell pressure from elsewhere." So there is sell pressure from miners, there's sell pressure from the exchanges, I guess there is even sell pressure from traders and businesses who, at some point, need a bit of fiat, right?

So even you as a trader, you're going to have to sell out some of your Bitcoin if you're trading Bitcoin just to have money to live on every month. So I guess there's sell pressure from a number of different places, but the primary sell pressure, you're saying, is from the exchanges and the miners?

Willy Woo: This is really key and it's very subtle. If I'm selling some of my profits to money, to USD to live on, you would think there's sell pressure, but if you were to really dissect this and just take it down to the fundamental, "Okay, I need $1000 to spend for the next week to pay rent. Okay, I'll sell $1000 of Bitcoin", but I'm selling it to someone who's buying it. So whenever you say I'm selling something, it's not true. It's an absolute myth!

It's what view are you taking. If you take the systemic view from outside of the, "I'm not Willy Woo and I'm not the buyer", if I'm looking at the market, I'm going, "Oh there's a buyer and Willy Woo. Willy Woo's selling and the buyer's buying, so that's matched." So it's a very neutral impact there.

Peter McCormack: So how's that different for the exchanges?

Willy Woo: Well, the exchange is like "Peter's going long, Willy's going short, I don't care which way the price goes." I know that between the two executing that trade, they take a fee whether it's like .025, point whatever, but they do take that fee and they take it out of your pocket and they take it out of my pocket. Then they're going to sell that on to the market. So you've all heard of the guy that got liquidated out of Bitcoin and someone else took that trade, but then this guy then goes away and is never going to look at Bitcoin again.

The winner of that trade is really happy, but then there's the untold story of BitMEX going "I took a fee out of that", and then that fee is then sold on to the open markets. That's very similar to mining where suddenly there's a tax on the system and then the buyers have to absorb. That tax is then taken out of the system and then sold back into the system and a new buyer has to come in to take that up. There's a hidden tax from inflation and there's a hidden tax from the fees from the exchanges.

Peter McCormack: Right, okay. So the market has to absorb that?

Willy Woo: Yeah, it's a non-neutral setup there, and as of this halving, that becomes the most predominant impact to the supplier side of Bitcoin.

Peter McCormack: Okay. So this halving will see the new supply, new coin issuance halved to 900 Bitcoin a day and you estimate there's... Is it 1200 a day Bitcoin from the exchanges being sold off?

Willy Woo: Yeah, that's the figure I got from the leading OTC desk. Obviously the other one's involved in working with the exchanges to turn it into fiat, so that's their estimate. So maybe some of the exchanges are hodling and they believe in it. I think CZ tweeted that they only sell enough to pay expenses and they're in for the long game in holding a lot of Bitcoins. So that's good news, but that means that they could actually dump more if they were not believers in Bitcoin.

Peter McCormack: I think Kraken does that as well, Kraken pays some of their stuff in Bitcoin.

Willy Woo: Yeah, that's really good to see actually. If you're paying your staff in Bitcoin, you're not selling to fiat. That's a true believer in Bitcoin. So it's good to see companies like that. BitMEX, no. Arthur Hayes has been on record to say "We sell everything to fiat." BitMEX is the 800 pound gorilla in this space and they produce the most volume by far.

Peter McCormack: Right, well we'll come back to BitMEX because I've got so many questions about those. Okay, so you've identified after the halving the exchanges will have the majority of the sell pressure, but what does that actually mean? It's not actually changing anything, it's not increasing the overall sell pressure right? It's just they will have a higher percentage of it.

Willy Woo: Okay, so you can think of this tax on the trading activity as mining. In terms of, it doesn't impact the supply, we're always going to have 21 million Bitcoins, but the effect of the price of Bitcoin is very, very strong. So where you're just like if you were to think of what happens at a halving, the halving means that the sell pressure halves. Instead of 1800 Bitcoins per day that have been on average going to be sold onto the market, now it'll go to 900.

Obviously, there's half the amount of coins being sold for the same amount of demand, the price is going to raise. Now you've got this mining industry that is selling 1,200 Bitcoins per day which no-one's that I've seen publicly talk about this and this 1200 Bitcoin per day is this hidden thing that has been raising since the advent highly leveraged futures trading accounts like BitMEX, which really their volume only started in 2017. So if you look at the halving in 2016, the volumes from a lot of exchanges we had there were spot exchanges, people actually buying Bitcoin to hold.

When I buy Bitcoin to hold, I buy the Bitcoin and then I might not buy again for another month or two or another four years. When I'm in a leveraged trading situation, I will buy one minute, I will sell the next minute. I was saying in that tweet, if you had a half a million dollars in a trading account, you can generate $400 million of volume if you're trading short cycles. If that was a spot trade, then like back in 2016, the kind of trades we did then, half a million dollars of asset I was going to buy to hold long-term, now that's turned into $400 million of volume

 Can you imagine the fees increase on that is exponentially higher. So while we're having a halving of sell pressure from the mining reducing, we're having a hockey stick that's being produced by the new derivatives exchanges. So it's creating a very untalked about sell pressure, and you can actually see it on the charts that's on the 2017 time phase that we're very, very sideways now.

Peter McCormack: Okay, because I was going to say to you surely this has always been the case. There's always been a sell pressure from exchanges.

Willy Woo: Yeah, see that's the thing is the quantity is... So 2016, there was a sell pressure. Sure, we had Kraken, we had Coinbase, I don't think Gemini was really big back then, but we had a handful. We had Bitstamp, you know, people buying. We had let's call it 1x in volume. Now in 2018, 2019, 2020 that's not 1x now, I need to pull the numbers up, but I wouldn't be surprised if it's now 10x in volume.

There are incredible amounts of volumes being generated on futures exchanges. So we're getting a halving from mining, and we're getting an order of magnitude at 10x from these futures exchanges. So we're moving into an era where the sell pressure is generated from this trading activity.

Peter McCormack: Okay, so it's something you have to be aware of. I'm not sure it's anything you can do about, but can you talk to me about these futures exchanges then? Just bear in mind, I'm not a trader. I very early on bought and sold spot and made and lost a bit of money, but realized this is a full-time job and you have to really know what you're doing. If not you can get burned.

So I just don't do it anymore, and I don't advise people to do it, especially if you know, I say "Look, just buy your Bitcoin and hold long." I mean my personal thesis is I'll have a consideration in a decade whether I'll sell. So that's my own personal kind of thesis, but in terms of understanding what futures are and how they work and the nuances, can you talk me through it? Explain it like I'm a beginner.

Willy Woo: Futures is really just bets. The original futures is like the farmer's going to plant a crop and you need to know that you need some certainty in the market. So I'd like to be able to sell my crop when I plant the seeds for this price, and then I can earn a profit. So the futures exchanges are designed for that purpose, is that that farmer who wants to sell their crop in the future, and then there's going to be another kind of risk-taker or a trader that comes in to buy that risk. "Sure, I'll buy that crop off you in the future" and then there's certainty given to the seller.

So that was how they originally were created, it's allowing this sort of hedge and it's to protect the farmer and then the other person buying the risk. Essentially, that's what you get in an insurance market, right? You don't want your house to burn down. You want to pay a little bit of a premium to say if this thing happens, then I need a pay-out. Obviously, someone's going to buy that risk, and it's a very low risk, but that creates this market where people can sell off risk. Then what happens is when you have this market where buying and selling of risk is created, the pure traders come in and say, "I'm betting on this going up or down," and they're not actually producing the underlying asset, they just want to make a bet.

So this is the majority of the volume in the futures market is that if the price is going down... If I think the price is going down, I'm going to make a bet on it going down, and someone else is going to make another bet on it going up. So ultimately, the majority of the volume on these futures exchanges are a bunch of traders making bets around the future. So you get into the situation where you can sell more than 21 million Bitcoins theoretically on a futures exchange because it's just a bet.

We call this derivatives. There's no underlying... You're not actually buying and selling Bitcoin. You're selling a bet around that coin, so the volume's at a lot higher. The leverage that you can do is a lot higher being offered by these products. I think it's a real financialization of Bitcoin, but I don't think it's healthy for the long-term growth of Bitcoin. I think that Bitcoin's far too early for these kinds of products.

Peter McCormack: So let me understand how they work. So if I want to make a bet, I just deposit my Bitcoin, go and make my bet, and then I'm settled in Bitcoin, but there's no actual relation to the underlying asset. It is just a bet? There's no Bitcoin generated from it.

Willy Woo: That's right. So you might say "I'll send one Bitcoin to BitMEX". So now that's sitting in... Let's go to the simple case of where you're going to something like Kraken, "I'm going to send one Bitcoin to Kraken and I'm going to sell it". So I'll sell that Bitcoin and I'll get US dollars for it, but in the case of a trading account, a collateral trading account, I would put one Bitcoin to BitMEX and that sits in my account as collateral. Then when I sell one Bitcoin, I'm not actually selling the Bitcoin that I put in my collateral account.

That's just sitting there as collateral, and what you're doing is making a bet that's going to go down. If it does go down, you make some profit. If it goes up, you lose, right? And the amount that you lose gets deducted off your collateral until it goes to zero and then you're out of the game. So that's how it works, you're not actually selling the underlying asset, you're making bets and your collateral gets hit from whether you're winning or losing.

Peter McCormack: Right, okay. So the problem here is also therefore an increase in leverage because if there's an increase in leverage, there's an increase in fees as well and it's the accumulation of fees which need to be sold back into the market by the exchanges. That's where you're seeing the problem, so this is creating the additional sell pressure.

Willy Woo: Exactly! Back in the Kraken day, I'll sell one Bitcoin, okay. Suddenly now I'm getting greedy, I can sell 100 Bitcoins from my one Bitcoin of collateral, and then suddenly I've generated that scale more fees for the exchange.

Peter McCormack: Would I be right in thinking this becomes a bigger problem in a bear market because the market's falling anyway? So there's additional sell pressure when we're bearish already, whereas in a bull market it hides it a little bit more?

Willy Woo: Well if the BitMEX policy is to be neutral about it and not hold Bitcoins, that they always want to sell off to US dollars to pay their staff and go into the founders fund or whatever, then whether the price goes up or down, there's always this constant sell pressure. So if we want a bull market, sure, the price is going up, but they're selling into it. They're going to be the ones that are going to be providing new supply, which buyers will probably want. In a bear market, they're still going to be the guys dumping new supply down into the market.

Peter McCormack: Why does everyone love BitMEX? Tell me the thing. I've always resisted, even in my early days when I did have a little trader, I always resisted signing up for BitMEX. Why do people love it so much?

Willy Woo: I think it's just the liquidity. They're facing strong competition now, but I'm with you. I was like why do people love it so much? If you're trading very, very large volumes, say you're trading, my guess is around... I think you start to need to use BitMEX when you're trading position sizes of $5 million, maybe $10 million or more, then BitMEX is your only real option. At those position sizes, you may want to diversify across exchanges, but most of the other futures exchanges, to some degree, they source their own liquidity from BitMEX.

Essentially, if you're on another exchange, they'll arbitrage across and dip into the BitMEX liquidity pool and pull some of that liquidity out to then present the trade to you on this other exchange. So most of the large traders will go to BitMEX because that's where the source of the liquidity is. So yeah, but BitMEX has issues around its auto-matching engine and it tends to lock up when the price starts to run and that's wrecked many people.

Peter McCormack: Yeah, so I want to ask about that because it's a bit similar to the Coinbase thing. Whenever there's a market crash, suddenly you can't log in to Coinbase. There seems to be a thing where exchanges seem to have issues when the market moves quickly, but they've had years to prepare for this, technically. So am I right to be mildly suspicious that they have a personal interest in locking up?

Willy Woo: I'm with you! I think that there's absolutely no excuse for BitMEX to have a crappy auto-matching engine. I hear Arthur Hayes talk about the complexity of their auto-matching engine and why it slows down, and on face value you go, "Well yeah, okay, it's very complex" and so forth, but... I've never been involved in that engineering side of things, but I do know the founder of Level Exchange and before coming in to build that exchange, he worked on, I think it was visual graphics processing, and he said, "Look, the volume of data you have to calculate over is minuscule on these exchanges."

I asked him the question, "What happens when the volume on this exchange, his exchange, starts to ramp up?" He says, "I am relishing the day where I can cut silicon," because it's a sequential process. Most processes you can throw more workers on it and run it in parallel, but auto-matching is sequential. What you do is you put it onto silicon, you cut it. Like we put Bitcoin mining on silicon, it's no longer running in software, it's running on ASIC hardware.

So the thing to note here is this is BitMEX, who make billions of dollars in profit and they have not cut silicon and they have this excuse that it's a very complex calculations, you do complex calculations all the time on silicon.

Peter McCormack: But what's the benefit? For somebody who doesn't understand it, what's the benefit to them having their order matching engine breakdown during fast moves in the market because they are also missing out on people trading?

Willy Woo: I don't think people jump off it. I think they use liquidity to track that, they liquidate... That's a real good question.

Peter McCormack: Is it like people can't get in and change their positions? You just can't log in and react?

Willy Woo: I just don't know. I tend to jump to nefarious causes around this because I don't understand why wouldn't you make this thing work for traders, because then if you're neutral to it, you're making your money off the fees, why would you care? You just want this exchange to work well, so that you don't undermine the trust of your traders. So I don't know, and I've not seen BitMEX give a statement that I can believe anyway around this.

Peter McCormack: But are they neutral because don't the exchanges themselves trade against their own customers?

Willy Woo: Well that's the billion dollar question. It seems to me that it's the perfect setup to trade against your customers, if you're in a....

Peter McCormack: Well you know the order book.

Willy Woo: Yeah, you know the order book it's very different from the era... I don't know if the listeners here remember the Mt. Gox era where one-eighth of all Bitcoins were stolen effectively, and we had this think called Willy Bot back in the era. I didn't create it, but it was like every 10 minutes there was this algorithm called Willy Bot that would buy $50,000 of Bitcoin. Remember, Bitcoin was worth, near the start of that, $200 or even less and that ran up to $1,200, so it was a very small market cap.

$50,000 was a lot and what that meant was, like Mt Gox had this engine to push the price up, they were buying Bitcoins with fake money, as they didn't have the US dollars to back it. So you get into this bit where, a bit like banks, they don't have the asset to back the money. If you withdrew it, you can do a run on the bank because they don't have all of the money. But with a futures exchange, you don't have to have the money. All you're doing is facilitating bets going long or short. This guy's thinking the price goes up, this guy thinks the price goes down, they make a bet.

If you're the exchange, it's perfect. You can go, "All right, everyone's going long, well let me throw an algorithm here that keeps selling." You keep selling and making the opposite side of the bet to push it down and you're always backed because it's not the same setup. It strikes me in an unregulated environment, it's the perfect environment to trade against your customers, and we're in the era of unregulated futures exchanges.

Peter McCormack: Yeah, because I would look at like last night and say, in my little simple world, I'd say "Okay, we've got a halving coming, everything's looking quite bullish and it looks like we're going in the next few days". Everyone talks about the halving as a very bullish event itself, I'm still not convinced. I think it's a bullish event over the space of the next 18 months, 2 years, but I don't think the day itself is, but a lot of people feel that it is. A lot of people feel that it is a bullish event. The price has gradually been growing and I can imagine there's a lot of people now long going into the halving, and perhaps long with leverage.

So I can see there's an incentive for somebody to go, "Okay, great, well let's market sell a huge amount of Bitcoin and let's bring the price down and then wipe out a number of..." And you see the whale calls coming in on Twitter all of a sudden, all these leveraged positions suddenly getting stopped out. So I can see there's an incentive for someone to do this, I just don't know who it is.

Willy Woo: Yeah, I walked into the headquarters of a futures exchange and talked to the founder. I'm going, "Who do you think this player is? There's some players here that are pushing this price around," and he's like, "We want to know, too" but no one's going to talk about it. All they know is there's a lot of dirty stuff going on in the markets. Whether it's a third party whale that's wanting to move the price around for maximum strategic gain, which is kind of fear and it's a fear way of making money.

Or if it's the exchanges, that's a very, very dirty way, yet I have yet to see anyone break a story of exchanges trading against us, but I know that a very significant amount of advanced traders do believe that the exchanges are trading against us.

Peter McCormack: But unregulated, offshore, how can you prove it, how can you check it?

Willy Woo: That's right!

Peter McCormack: Well listen, look, as I said I don't cover trading a lot because I don't trade myself and I do recommend new people come in and just don't trade. I recommend just have a buy-in strategy and a holding strategy and go simple, but...

Willy Woo: Well, before we move onto that, I would say when I get asked by friends "Shall I trade?" Everyone thinks that trading's a great way to make money. I have this thing that I say, is that what you want to do is put a tiny amount of money in, and then your goal is to learn the max amount of lessons for the amount of money you lose because you will lose it, because in most markets, 90% of traders lose, 10% win. In the Bitcoin market, 99% of traders lose, 1% win.

The reason why you want to learn these lessons is the entire world works on markets. So whether you're going to buy your next house, be able to read a chart of where the housing market is, whether you're going on a overseas holiday and want to know when the best time is to buy the forex into the new place you're going to spend your money, those are the useful skills. So learn those lessons, don't think of trading as anything more than a way to lose money. Think of it as a way to learn a lesson or how the world works.

Peter McCormack: Well, that's fair. But I don't know if you follow my show at all, but I did this beginner's guide, 17 episodes covering everything to do with Bitcoin that you could possibly learn, although I didn't put trading in there, and I've just turned it into a one hour episode. I've been through like 20 hours of content. It's like what are all the best bits I can get this into one hour for somebody.

But the thing I said about trading in there, I was like, "Look, most people lose money." Like I said, even seasoned traders who've got experience of multiple different markets, they lose money. What is so special about you that you think you can come in and suddenly outsmart the market, and I've heard this 90 to 10 rule. I didn't realize like what you said, 99% of people are losing.

Willy Woo: Yeah, that was a publicly stated number by Arthur Hayes on BitMEX, 99% of participants lose.

Peter McCormack: So do you think there's a churn or do you just think there's degen gamblers coming back over and over again, throwing themselves to the sharks?

Willy Woo: I think it's just exactly what I've been talking about, is in this an unregulated environment and in the very immature, thinly traded asset like Bitcoin that it takes just a few guys with all the ammo in the world just to move it anywhere they want and to take out the most traders. So it's a lethal combination! In the regulated markets, you've got highways, right? You've got highways and cars traveling here and there. In the Bitcoin market, you've got a big, huge 20-ton truck and tiny little minis driving around, and that truck's going to take everyone out. It's very outsized.

Peter McCormack: What do you think would be more important, regulation or more liquidity?

Willy Woo: Yeah, it's an interesting one. I actually think that we need regulation in this space, I think that's more important. We've got liquidity for Africa in Bitcoin in terms of the futures exchanges. Do you mean liquidity in terms of the spot markets? We've seen those spot markets are being traded. I think what's needed is that the spot markets have a higher proportion of the liquidity versus the liquidity exhibited on the futures exchanges.

Investors exhibiting more volume than the degen traders who are making bets around it. Right now it's also degen traders, all of the liquidities there. So it's kind of like I'm going to make a $1 bet here and with 10 cents, I'm going to push this little pipsqueak thing that's happening on Kraken around so I win that bet on the other side. So yeah, bring balance to the force and bring balance to the spot exchanges.

Peter McCormack: Yeah, because that's what I'm thinking. You're saying with $50 million, I think is what you said, you can move the market around, right? With a lot more liquidity and a lot more volume, you're going to need more than that. So I would have thought more liquidity will make it safer for the little guy?

Willy Woo: Yeah, so we're talking about liquidity in terms of, you've got these two parts of the ecosystem and on the futures exchanges there is incredible amounts of liquidity. Even on a second tier futures exchange, I could sell easily $2 million of Bitcoin in a number of seconds and not have that impact the price more than a few cents. Then if I did that on Kraken, man would that price move! You would notice that happening on a spot exchange. So there you can get the situation where you can start to move the spot exchanges around to make sure and guarantee your bet is going the right way.

So if the spot exchanges had a much larger liquidity base, when I start to buy my $2 million of Bitcoin on Kraken for example, it doesn't move much, then that creates a much more stable market and it's primed by these futures traders to start to manipulate the market. Essentially, if you're a trader, if you're a very large trader, your goal is to manipulate the market. You take risks in doing it, someone could take the other side of the bet, but at this size of the game, you want to flex your muscle at the right time to guarantee your bet as much as possible and hope that there's not another big gangster coming in to push you the other way.

So yeah, the regulations, if they came in, would start to bring balance into this market, but the futures would no way allow 100x or even more leverage. That's just degenerate, which leads to this imbalance. Then for sure, they would be audited so tight that we know for a start that there's nothing hanky panky going on behind the scenes.

Peter McCormack: Okay, well let's do some of this trading 101 stuff. So someone new coming in and they're like, "All right, I get this Bitcoin stuff. I've bought a little, but I want to be a little bit greedy and I want to go out and trade. I think I can trade and make a bit more." So I just want to cover some of the basics. But really, is there anyone out there that shouldn't be trading? Anyone you think you really should just stay away from this?

Willy Woo: Oh I think that's probably the majority of us, to be honest. I don't think many of us should be trading. I don't know if it adds much value to Bitcoin. But let's qualify this. What I call trading, it's like we put some collateral in and then it's a casino, we're betting against other people, that's like the derivatives market. Bitifinex is interesting is that it's a spot exchange but they have a margin trade, and that's also in the class of making bets. But then when you talk about exchanges like Coinbase, Kraken, Gemini and so forth, these are a different kettle of fish. Obviously you need these types of what we call spot exchanges to allow investors to sell out of their asset and new investors to come in.

I don't consider that trading, you're not making a short-term bet. You're actually buying the underlying or selling the underlying. So I think very, very few people should be trading on the derivatives exchanges making bets. If you're thinking about the spot exchanges, then sure, you need it to get in and out of the asset class. I was listening to Ray Dalio and he did a really good interview with TED Talks recently, and he mentioned everyone thinks that they're going to make money trading.

They're going to beat the markets, and he was saying, "I can tell you that beating the markets is harder than winning a gold medal in the Olympics," and he doesn't meet many people out there in the public that thinks that they get the gold medal in the Olympics, yet everyone thinks that they'll beat the market. So I don't think many people should be trading outside of that education side of the game.

Peter McCormack: Well that's why my trading strategy is buy and then hold for 10 years. I think I can win that way! I think with a 10 year hold on Bitcoin I can win.

Willy Woo: And if more of us do that, Bitcoin will prosper more easily. It's this trading that's holding Bitcoin back, to be frank.

Peter McCormack: Why? Because people are just throwing money away and creating sell pressure?

Willy Woo: Yep, that's the fees going to the exchanges producing sell pressure, and that is hockey sticking. That is going up by orders of magnitude while we all celebrate this mining and this mining's going to reduce the sell pressure and the price is going to go up and it's halving. Meanwhile, the exchange volumes are 10x-ing and 10x-ing and they're taking over from the miners by producing that at exponential rate.

Peter McCormack: All right, so listen, look, some people are going to ignore you anyway Willy. They're going to be like, "Yeah, but I am that 1%." So if somebody does want to go and trade, if they want to go and dive in, how does somebody learn to trade? What are the places you would point them in the direction of? You can't just sign up to an exchange and start throwing money around, right? You've got to at least go and learn some basics, some fundamentals?

Willy Woo: I was self-taught and trained in trading and that's... The very interesting thing about Bitcoin is that it allows you to trade very, very tiny amounts. I traded in Poloniex, which was quite big back then.

Peter McCormack: Trollbox!

Willy Woo: Yeah, the Trollbox! 2013, 2014 where it started to really ramp up. So I would say go to Poloniex and this was like you just look down the list, and there's all these alt coins, all these shit coins, and you're just like, there's the big leagues, which is Bitcoin to... I think it was all thrown against Bitcoin. So big league was Ethereum to Bitcoin, that was very high stakes because there's a lot of volume. The big traders have a lot of money, they only play on the high stakes table and you've just got to keep going down that list and you pick the table that is low stakes where the beginners at, and then you can learn to gamble because that's essentially what you're doing. Like poker, there's skill involved.

There's nothing like the experience of reading what the players... When you start to watch the order books and the charts, you start to read what people are trying to do, trying to scare you into one position and so forth. So there's that side of very organic learning, which is a visceral sort of experience, and that's how I started. But then there's also the technical aspect of figuring out based on drawing lines on a chart whether things are going to break out or not, and there's a lot of good YouTube videos. I would probably go into YouTube and look at some channels.

Tone Vays does a very popular channel, he uses a particular system, but there's many. There's a lot of online courses and groups that you can join to learn about trading, and that's what I'd say. There's a few groups out there that you can join. I won't name any of them, but you have that community factor where you learn together. I never learnt that way, but I can see the value in that.

Peter McCormack: Okay, so there's two sides. There's learning the technical and then there's a kind of, get out there, get in the field. If you're a footballer, you've got to kick a football around to get a feel for the football and same for this. You've got to go out there and make a few bets and just get the feel for how the market moves and I get that. What about rookie mistakes? What are the stupid things that rookies do that they need to avoid doing?

Willy Woo: Oh gosh, where do you start?! I mean the very basic one is risk management. You want to make sure that you have a plan if you're wrong. So generally, the most important thing is making sure that if the trade goes against you, you stop and you stop out. So you limit and contain your losses, but even more basic to that is that I think the very basic human nature is that if I'm down...

If I say you're down, most people will want to increase the trade because they want to make their money back, and that's actually the time you want to reduce your trade because you made a wrong decision and you want to cool off because you're getting more emotional. So there's a big emotional part of trading, that's the bit that most people get really screwed on is that they get too emotional. All the good traders are very, very zen or immune and unemotional. It's almost a practice. So that's a big mistake, getting emotional.

Peter McCormack: We have that in poker Willy. I don't know if you play poker, but we say if you're going on tilt, it's chasing your losses.

Willy Woo: Yeah!

Peter McCormack: Yeah, so it's quite an emotional thing in poker especially because one of the things about poker... I guess there's some similar things in trading, right? In poker, it is part skill, part luck. The skillful player over a long enough games will come out on top because they're playing a little bit of math, and I guess trading's the same. I guess trading is part skill, part luck, right? You can read the market, you can make sensible trades, but at the same time the market can turn at you.

For example, specific news that you might not expect comes out, maybe Bitcoin gets banned in a country or something and that affects the market. So I guess there's a bit of that as well, but we have people in poker who go on tilt, who have a bad loss and they start chasing and start making stupid decisions. Before when they would, I don't know, they might only play a 6, 7 suited, they might play 6, 7 offsuit and then chase a low pair and start losing more money. I guess that's a very similar scenario.

Willy Woo:Yeah, it is very similar. It's very interesting to see that the majority of Bitcoin traders are big poker fans. Whenever we do these Tone Vays conferences, he's always throwing in a poker game and it just always surprises me is that trading... It's Bitcoin meets traders, but it always surprises me how many of them are poker players. Same skillset, you know.

Peter McCormack:  All right man, are there any things specific that you like to look at? Like indicators and things? I know you like your unchained fundamentals. Talk about some of the stuff you like in terms of trading.

Willy Woo: Yeah okay, so having talked all about trading, I almost feel a pretender here because I am not an expert trader. I'm a profitable trader, but I only trade to test some of the signals that I work on. So my field is really is what we call fundamental analysis, is what's really going on in the market over the long-term, what we call the macro cycle. So with Bitcoin, it's a very new kind of animal that we've seen that if you were investing in say, Amazon stock or Google stock, Apple stock, it's not like you get to see how the management is running or any event inside the company because that's behind closed doors.

But in the blockchain world, you can see everything happening. I can see when buyers are coming in and holding their asset, moving them between wallets. I can see when old holders who've had their coins in there wallets for six or seven years come out of the woodwork and start to sell that on some market. That gives you very detailed ideas or signals of what's happening in the whole network. Obviously, for example, if we say the market is buying right now, what do you actually mean? Because if someone's buying, who's selling? There's always a seller. What we actually mean is who is the smarter person that's buying. So if you're looking at a wallet and suddenly what's this?

There's all these Bitcoins coming out of these old wallets en-masse now and they've been in the wallets for four years or more, these are people that held their coins from the last sort of cycle of bull bear, and they're experienced and that's down to sell. You can go, well they're most likely more smart than you guys buying. So you can start to look at these behaviours inside the blockchain by peering into it and kind of reading where we are. It turns out that these bull bear cycles that we have in all markets, in Bitcoin you can actually see the underlying activity on the blockchain repeat itself.

As the market starts to get hyper and the lemmings are coming in to buy at that mania phase of the market, you can see these old whales have held their coins for four years or more start to sell, and they're starting to move and you go, "Oh okay, that's a signal that we're staying to reach the top." So yeah, this is this new field called on-chain analysis that really started when I started posting some of this research back in, I think late 2016. Now it's become a very large field with specialist companies like Coin Metrics providing that data to hedge funds and so forth.

Peter McCormack: Awesome man! All right, cool, well listen, I think this is going to be a little introduction, I do hope most people actually don't go and trade. It's still going to be my advice to people is like, just don't go trade. All right, Willy, listen, appreciate you coming on, it's about time you finally did it. It was cool to hang out with you in Vegas as well and finally meet you, and good to do a bit of trading introduction. I'm still going to recommend to most people don't do it, to look at the numbers and just be sensible!

Willy Woo: Yeah, I feel like starting a movement against trading right now. I've only just realized how damaging it is, put numbers to...

Peter McCormack: But surely we need a little bit of trading because we need price discovery?

Willy Woo: Yeah, that happens on Kraken, not on BitMEX. BitMEX is responsible for the zigzags and the volatility. Volatility kills new people coming in and scares them away, people get wrecked, they get turned away and you have the sell pressure from the exchanges. We kill BitMEX, the price would be a lot higher right now.

Peter McCormack: Okay, so you don't want to kill trading, you just want to kill degen trading.

Willy Woo: Yeah I don't want to kill the act of buyers coming in, buying and selling their underlying asset, then you get the traders around Kraken that actually add liquidity. You need people to take the other side of the trade of the underlying, but when you get to derivatives trading, shitty! We're just making bets and then all of that so we just get dumped, all the fees get dumped onto the market. I'm a believer that we need to get to $1 trillion and then $10 trillion, otherwise, Bitcoin doesn't make a dent in the world and BitMEX etc, is just slowing that down.

Peter McCormack: Well I'm with you on that, brother. I want it to $1 trillion, and then I want it to $10 trillion! Hopefully it'll happen. But listen, I appreciate you coming on man. Listen, if people want to follow you, especially if they want to go read some of your Medium posts, where can they find you?

Willy Woo: Okay, so I'm on Twitter as @Woonomic and if you want to read some of my blog articles, not very active these days, but you can find me on woobull.com. Obviously I'm bullish on Bitcoin! So go to that site, and I also have a lot of charts, charts.woobull.com from that site, which a lot of on-chain research I do looking at the macro side.

Peter McCormack: All right nice one man. Well listen, appreciate this, stay safe and healthy out there. Maybe I will see you back in Vegas next year or maybe we'll never travel again! Who knows man, but stay safe!

Willy Woo: I hope not. But yeah, look forward to having drinks with you next time.

Peter McCormack: All right brother, take care, bye!

Willy Woo: See you!