WBD327 Audio Transcription
How to Trade the End of a Bull Market with Willy Woo
Interview date: Monday 29th March
Note: the following is a transcription of my interview with Willy Woo. 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 episode, I talk to on-chain analyst and the co-founder of Hypersheet; Willy Woo. We discuss the drop from $62k, Cryptoquant's analysis, the "Rick Astleys" buying the dip and how to catch the top of the market.
“You’d be crazy to sell right, now. There’s more buying the dip than ever seen before, a new record for 2021 and we know the person that’s buying the dip is Rick Astley and he’s not going to let us down.”
— Willy Woo
Interview Transcription
Peter McCormack: Willy, mate, how are you? Are you doing well?
Willy Woo: Hey, Peter, doing great; real busy, this thing where you go to sleep next year, not this year.
Peter McCormack: Yeah, this year, we make all our money this year and then we can go into a two-year hibernation.
Willy Woo: Recharge, you know.
Peter McCormack: Well, I don't know, man; that's if history repeats itself and we don't have the supercycle, man.
Willy Woo: Yeah, we shall see.
Peter McCormack: But anyway, listen, always good to see you. Before we get into the monthly stuff, there's something I want to talk to you about first. I just want to talk about this -- can't even remember the name of the company; what are they called?
Willy Woo: The CryptoQuant?
Peter McCormack: Yeah. So, there have been two incidents, right? There was the Gemini incident, but there was one previously with the miner, with F2Pool, right, where they made a claim that they were dumping; and now they made a claim this time… Did they make a bold claim, or were they just sharing data that everyone was looking at?
Willy Woo: Look, I don't know. I was shown all this F2Pool dumping data by someone on Twitter and people asked me questions. I looked at it and I was like, "That doesn't look like the data I'm using", because I use Glassnode. CryptoQuant is a different source, right. And, what you have to understand with it is a lot of it comes down to how they receive their data, whether or not they're figuring out these are the wallets that the miners own, if I have that straight.
So, I didn't see any dumping from F2Pool, using Glassnode, but there was a lot of dumping coming from the data that CryptoQuant was releasing. And I think you were saying that F2Pool announced that they weren't selling, which means that that data was erroneous. I don't know if it caused much of a market hoo-ha; a lot of people talking about this was bearish.
Even if it was true, I didn't think it was very valid, because miners don't have much sale pressure next to the buying of the full bull market at full force. It's ridiculous how little miners have in terms of dumping power; unless you happen to be a miner called Satoshi or Hal Finney, and it's this accumulated years, decades-old mining at least, which they are still labelled as miners, which their accounts follow an inventory that's sitting on miner-labelled accounts.
But, of course, a lot of those coins are probably lost; a big chunk of them are Satoshi's. All the really active miners, all these major pools that are in business, they're constantly selling and that sort of sale pressure is very, very minimal compared to the might of -- even just Grayscale itself will buy more than all the miners sell off per day.
Peter McCormack: But, there's something else happened this month with Gemini, right? They put out something saying that a large amount of coins have moved into Gemini and the implication was that a whale was moving coins and a big dump was coming; and then we saw a dump.
Willy Woo: Yeah, so that's what I actually thought when you said twice, because what happened was CryptoQuant have actually a Telegram group, which they broadcast all sort of major plays in and out of the exchanges, and they broadcast to 28,300 people that -- you can see that, because it lights up with how many people have read it -- that $1 billion had flown into Gemini and they warned of, essentially, $1 billion of money was coming in, "Beware of dumping".
On the first account, it's quite ridiculous, because Gemini doesn't have the liquidity to sell off $1 billion, so it's immediately suspicious; and I immediately asked Glassnode's CTO to double-check on that, because they didn't actually show that on their data. So, yeah, it turned out to be just -- later, it was found out to be BlockFi's wallet and there was a lot of hoo-ha.
I think that they were saying -- they turned it from whales dumping, which was the initial alert, to, "No, this is definitely an external party depositing into Gemini", and they made that the debate, rather than that warning, which I thought was quite disingenuous; trying to change the goalposts of the conversation to protect their reputation.
The outcome was that it was an external deposit, meaning it was BlockFi depositing into Gemini, as a custody provider, but that's certainly not the picture of a whale dumping; that's actually a bullish incident, that a lot more coins had been scooped up under custody by BlockFi, being put into Gemini's custody solution.
So, yeah, what then happened was you saw this immediate sell down from the minute that alert went out. $3 billion of long contracts got sold down over the next few hours and then eventually, 450 million contracts were liquidated. So, traders were rekt to the value of almost $0.5 billion. And then, that was the last top we had. That happened right at the very top of the market.
So, we had this wind down that took a lot of the buying momentum out of the market; it scared a lot of people off. The thing with it was, and I didn't call this out on the prior time it happened, it was the second time it happened; there was a similar event at the last top, which was just over a month ago. I'd have to have a look at the chart. I think it was; what was it? Yeah, there was a $57,000, $58,000 top. It was after Tesla announced they were buying.
There was this huge FOMO and then, there was another $1 billion movement. I think was even more; $1 billion to $2 billion movement, which was erroneous, and that did a similar amount of sell-off; roughly $3 billion again and a $0.5 billion liquidation. Then we saw on-chain, everything went slightly bearish before it recovered. So, second time in a row, yeah, it was an interesting grab.
Peter McCormack: Let me ask you something; so, when those liquidation events happen and $1 billion, or $2 billion is wiped out from traders, who's picking up those coins when they're being wiped out; is that the exchange themself? I don't understand this. So, when they're forced into -- a stop-loss kicks in or something.
Willy Woo: Yeah, so these contracts are constantly -- when you're on a long contract, someone else is taking the other side of the trade; you're not actually buying the underlying asset, which is the Bitcoin. So, when you actually buy a long contract, you're just buying a bet that the price doesn't go up. Then, someone's taking the other side of it and so…
In the Bitcoin market you might ask, "Well, everything's going hyper-bullish; why would anyone take the other side of it?" and the answer is that you may be based on a US dollar benchmark as a fund, and you might want to generate, maybe, a high yield on your US dollar capital. So, what you do is you buy the Bitcoin and then you'd sell the short contract in the futures market. Then, because there's such a high premium with that, you get a high return. You might get 20% per annum doing that.
So, all these traders are like in these long positions, they were selling down those long positions, so that does have an impact on the market. Those contracts, when they're selling, they kind of work like a real sell, because when I sell down a contract, that sale arbitrages across to spot markets, so it does look like actual real downward sale pressure on the real underlying spot markets.
Peter McCormack: Right, okay. But basically, based on this data that went out on this, did you say, Telegram group, the 28,000; essentially, you can kind of point at that. I mean, I guess you can't say it definitely is, but it's highly likely.
Willy Woo: It's highly likely, because it happened within 30 to 50 seconds. There was an immediate dip down and then there was a second wave of sell down and that was the real one.
Peter McCormack: But, some traders must have lost a lot of money?
Willy Woo: Yeah, a lot of traders got rekt; $0.5 billion of liquidations. I don't know, some of them might have sold out at a profit, because the price had been ripping upwards for days and days; but, yeah, there were definitely a lot of losers in that sell down; $0.5 billion worth.
Peter McCormack: What can and should be done about this though? Should they come with a warning label; is their reputation at a point where people shouldn't trust them? Because strictly speaking, if they have that much kind of influence, they themselves can short the market before they release certain bits of information?
Willy Woo: Yeah, I totally imagine it's subject to, I don't know, regulators. I don't know if regulators have an eye on that stuff. Certainly, if you're in a position of information asymmetry, like CEO of a company, you can't just broadcast stuff out. I don't know, because this is an emerging industry. I'd hate for it to be regulated; it's global. I think it's just what's transpired, which is the community coming together and calling out errors, making people accountable.
We didn't see anyone calling the first issue out, the $58,000 top a month ago; and we also had the same issue. I mean, I didn't call it out; I just wrote about it on my letter. But on a second time, I did announce it. I didn't really name names too much, but the CryptoQuant went into defence mode and tried to make it look like they were right and made a game out of it. I thought it was prudent to actually just break it down and say exactly what had happened, you know.
I mean, they're a new venture. I think they're doing relatively good work and it adds to the ecosystem. I just think we've got to keep each other honest. I expect to be called out if I do bad work; I'd expect Glassnode to be called out. Everyone's got to be careful that they're checking what they're doing and being responsible. So, it's along the lines of Messari, you know, they're doing a lot of data on the industry and it's sort of self-policing; let the industry police itself.
Peter McCormack: All right, that's fair. Okay. So anyway, since we did last speak, we did get up to $62,000. I thought we were going to go higher; I don't know why. I probably think that every time it runs up. We're now seeing a little bit of pain right now. You're pretty good at knowing what the bottom is before we rip again. Where are you seeing the potential bottom in this? Do you think we'll go below $50,000; could we; should we?
Willy Woo: I think we're at the bottom now. I mean, I was just checking earlier today and I was looking at the on-chain flows, inflows, and it tends to do a particular signature where it just zeros out and then flows coming in to the network start to accelerate away while the price is still dropping. And, we got that for a second day in a row today.
Meanwhile, we had today the largest outflow; Bitcoin being scooped up off the exchanges and being moved into cold storage, the highest we've seen this year. So, I'm pretty confident we're within -- I think this is the bottom. If it's not, within 48 hours is the bottom. And so, yeah, I'm stacking up my long positions right now personally. But, yeah, I think we're pretty close.
Through this entire downward move, you can see from the price action and the way in which it's trading on Coinbase, there's consistent buying and consistent outflows going into cold storage. So, that signature to me is maybe an announced institution that's buying; maybe it's a private hedge fund, or many of them; but certainly there's a lot of buying going on from Coinbase, which tends to be US institutions.
Oh, by the way, those coins moving out; they're moving to participants that have no history of selling. So, either they are new, they're brand new wallets and they're just in accumulation mode; or, they're existing holders that are continually adding to their stack of coins that they're not selling.
Peter McCormack: So, how does that work then, Willy? Because, if you're seeing consistent inflows, consistent buying, yet the price is dropping, what is actually going on here? What is at play here that's pushing the price down if we've got all these new people coming in and buying?
Willy Woo: Well, the way I look at it is that there's a price floor on Bitcoin based on the amount of capital that's coming in and held by long-term investors. And that price floor is not the price that you see on the chart. There's a price floor which is supported by these long-term guys, which I do a lot of modelling around to try and figure out what that is; and then, we'll see the speculative price that moves above the floor and that's influenced by short-term participants, short-term traders that are buying the Bitcoins, or now we've got these futures exchanges which do much higher volume, and they're buying these long contracts, or short contracts.
So, that price that we actually see on the price chart can float way above the floor, or even drop below it, in massive scares, like the COVID event. So, I have got a particular model that I use and it seems to work very, very accurately and whenever we hit the tops, which we've done twice in this main bull run, it's about 33% above the floor. We got pretty close. We got to 28%, I think, before that false alert we got. I kind of expected us to rip up to the 33% again; it was definitely at the momentum, but then that took the momentum out.
So, there's plenty of room to drop. It's currently around the 15% to 18%, which is about right in a bull market, using that indicator. So, yeah, there's certainly speculative yoyo springy movement above the floor to go, especially if we're high above it.
Peter McCormack: Are you talking about the Rick Astleys here as well?
Willy Woo: Yeah, but that's the strong holder thing. I was talking about the Rick Astleys which, what Glassnode do is they break all the wallets up that are visible; they bring them together into clusters. Each cluster is what looks like one person and then you can sort of look at their history and go, "Well, this cohort are very speculative. You see coins coming in and out of their wallets and so, they're not really holders; they're in it to trade speculatively".
Then you have the middle ground where they're stronger holders; they buy more than they sell. Then you've got the Rick Astleys of this world, which are highly illiquid. They just buy and buy and very seldom do you see flows coming out of their wallets. So, one of the metrics that you can draw with that is to see how much of the coins flow into Rick Astley, because that dude's never going to sell or let you down, right?
Peter McCormack: I fucking love that, man! He's a national treasure here; I hope you realise that!
Willy Woo: 1987, it was a good song. 2021, it's the national anthem of the universe!
Peter McCormack: We love him here. He's an absolute national treasure. If you're listening, Rick Astley, we love you! All right, man, well listen, so you're saying, well you are saying, I know you're saying, I saw it on your Twitter, "You would be crazy to sell right now".
Willy Woo: You'd be crazy to sell right now. There's more buying the dip than ever seen before, a new record for 2021, and we know the person that's buying the dip is Rick Astley, and he's not going to let us down!
Peter McCormack: He's got big diamond hands! All right, pal. Well look, also, so much fucking bullish news, right? I mean, the thing about -- it's pretty clear that Elon Musk is going pretty big with Bitcoin; Fidelity have applied for an ETF, but everyone has.
Willy Woo: I think there are 39 ETFs in the pipeline right now; that's the figure!
Peter McCormack: Yeah, I know, dude. When they hit, that's when we might see one of those massive jumps. We've also got Morgan Stanley opening up to their customers as well, to their wealthy customers. So, there's a lot of good stuff happening and fundamentally, it feels like a really strong place.
Willy Woo: Yeah, it feels really strong. I love it that Tesla decided that they were going to stack sats by selling one car at a time.
Peter McCormack: I know. Somebody said they've turned their production factories into a -- they're basically mining Bitcoin with cars.
Willy Woo: Exactly; it's a new way of doing it. I love it! And, I love how they built the payment system using their own node; full crypto, nothing goes through banks, it's just buy the car and it's in their wallet.
Peter McCormack: It's so fucking badass they've done that. I was chatting to my producer the other morning. I was thinking, well look, someone like Tim Cook and other CEOs must be looking at that and going, "Hold on a second; why are they doing this and why are we not doing this?"
Willy Woo: Yeah, they've really no excuse, right; Apple's a tech company. I do remember the early days, they did not allow Bitcoin wallets on the iOS platform; I remember that. Do you remember that? They were a bit slow with the Bitcoin stuff.
Peter McCormack: We've got them there now, man; we've got them there now. All right, so I'm going to pull something I saw on your Twitter, "Whales becoming dolphin/sharks, new buyers coming in, cohort is still accumulating, they usually sell in the middle of the bull run. Still bullish". So, the question I really have is structurally, is this just playing out the same as previous cycles, or is there anything happening this time that's different, where you're like, maybe something different is happening?
Willy Woo: Yeah, so it's completely different. I mean, everyone's talking about that we're templating onto 2013, 2017 and I think we have to be aware of the different participants we have. The big one of course, which we all know, is institutions and so, we have to account for that and I think that's what we're seeing right now. Institutions are a menagerie.
You've got the Michael Saylors and the Teslas, which are corporate treasuries that are stacking; but then you've got the Ruffers of this world. They're really macro funds that are using Bitcoin as part of their portfolio and they're going to take profits and Ruffer took profits way back after they had, what was it; a 3X or a 5X?
Peter McCormack: Something like that.
Willy Woo: Yeah, something like that.
Peter McCormack: They took out the original investment.
Willy Woo: Yeah, totally. They got pressure from their investors and they said, "You should genuinely rebalance", so they rebalanced so they could hold the risk without a lot of backlash with their investors, because it's free now; and we've just run into this March period, end of quarter, and you can see the steep drop as we approach into it.
So my guess, looking at that is that we've got this end of quarter rebalancing, bearing in mind if they got them from the last quarter, they've done effectively a 6X; a 3X to a 6X, depending on where you entered. So, if you're a macro fan, you probably want to rebalance; you probably have directives to rebalance, because you don't want to contain -- their directives are to mitigate risk, so they will probably have to sell their winners to buy more losers.
You see that with the whale balances; that is definitely dropping, but you see the next tier down, the dolphins and the sharks, which is the 100 to 1,000 Bitcoins in their wallets; that's growing to take it up. So, if you sum the two together, you get this chart that shows this entire cohort, whether they're whales becoming dolphins or sharks or whatever, and the guys underneath them, overall there's an accumulation and that has still continued to climb.
Anyone holding 100 to 10,000 Bitcoins, that cohort; they're, as a group, continuing to add to their Bitcoin. And typically, and I don't know if I can continue to template this, but the last two bull cycles, this cohort started to sell down by the middle of the main bull run and they're not selling down yet. So, if it holds true this time, yet to see, then we're not halfway yet, which kind of makes sense; same with this quarter of the bull year that we have, one every four years as a bull year.
Peter McCormack: Well, it's a bit longer than that though really when you think about it, because the bull run starts from the bottom, essentially. So, the bull run has really been going for about a year now. For you, what signifies a bull? I think the bull run starts from wherever the bottom was.
Willy Woo: Yeah, so that's what I'd say as well. So, if I want to break it down and be more specific, we only really had a really hard one year of bear market, then we started with the bull phase. You typically have three years of bullishness to one year of bearishness. But then, you've got the -- the first part of the bull run is the accumulation bottom, which can last six months, three months, even nine months. Then you have the early phase, which is when it sort of pumps up, gets everyone excited; then that sort of dies down a bit.
Then there's a reaccumulation and then you have the real bull, what I call the main bull phase, which is usually played out in one year. 2017 was the last one; 2013 was the one before that. 2021 is the main phase of the bull market, so that final explosive bull run, the one year out of the three years of bullishness, is happening now, the crazy bullishness, where grandma's going to tell me to buy Bitcoin by the end of it.
Peter McCormack: Well, the thing is, there's something everyone wants to know with it, and this is where it gets tricky. If everyone is completely aware of the cycles, they're like, "So, okay, it means the cycle's going to end around December/January; what is the top?" You want to be the person who is entering this cycle, who sold at $1,100 in 2013 and sold at $19,500; you want to be that person. And, there's such a range of numbers. I've seen you even looking at the macro cycle. You've raised your top from $250,000 to $300,000, right?
Willy Woo: Yeah, it's gone up. I have a model and the model spits out this number and the model keeps moving. I'm in that nice place where I don't have to be right or wrong; just the model has to be right, and it keeps changing trajectory upwards. So, it was sort of ballpark $200,000 to $300,000, if you assume the end is in December; and now, it looks like $300,000 minimum is the trajectory. So, that can go further up, or it can go down a bit if we have -- it just depends on how the price action swings over the rest of this year.
Peter McCormack: How do you play it though, Willy, with yourself? I mean, are you looking for that to think, "Right, I'm going to unload a certain percentage of my position at that point", or do you scale up and scale down; like, are you scaling out over a period of time? And maybe this is too much information, because you're happy to share data, but you clearly want to front run everyone else. But generally speaking, do you -- or do you just not care, like me?
Willy Woo: I don't think I'm really a big enough fish to care about front running anyone! But, I'm navigating this quarter by quarter. I'm aware that we may have a supercycle. I have no strong opinions about it, but it's possible. But, you know, there's a lot of leverage in the system, so we could crash down a lot as well, I think.
So, I'm not going to scale out, like you see those dolphins and whales doing. That's a pattern of, I think, very wealthy participants that aren't trying to time the markets. They look very wise; investors that don't play too much of a timing game. And they scale out, you can see that. Anyone with 100 Bitcoins or above, they're tending to scale out six months before the top, because they don't know exactly when it is.
I'm planning to start to look at that around within three months of the top, I'll start to have a closer look at it. The last few weeks to the top is just ridiculously fast. Did we go, do you remember, Peter, was it two weeks from $10,000 to $20,000?
Peter McCormack: Well, it was even more, wasn't it? Like, two weeks from $6,000. I'll get it up here. Okay, so we hit -- we peaked around $4,600, $4,800 in August and then we peaked on December. So, we went from $4,500 to $20,000 in --
Willy Woo: So, kind of like the 4X; if you scale out too early, you miss out on the last 4X.
Peter McCormack: But strictly speaking, we went from -- so, we hit $7,400, 30 October and then on 6 November, we dropped down to below $6,000.
Willy Woo: Yeah, exactly.
Peter McCormack: So, it was that 6 November, we went from just under $6,000 to -- I mean, I'm looking at the candles here. But, yeah, six weeks, we essentially went from $6,000 --
Willy Woo: I've got the chart up now, right. So now, it looks like --
Peter McCormack: No, so it's 11 December.
Willy Woo: The final month, we went from $6,000, roughly $6,000 to $20,000. So that's like, we did a 3X in one month. And then, if you go for the quarter, we did a 5X, essentially a 5X over the final quarter. So, I don't want to scale out too early and we're not even close to that part of the market yet.
So, my strategy last time was actually not to sell. I was not to sell leading up to the top. It was more that I would wait for the top to start to signal and then I would sell on the downward run. If you're a whale and maybe a Michael Saylor-sized whale, maybe you've got not even 100,000 Bitcoins, but maybe you've got just the paltry 10,000 Bitcoins, you might have trouble selling in the downside of the market, because the liquidity starts to dry up on the way down.
But, for ordinary people who have got under, say, 1,000 Bitcoins, I think it's perfectly fine. There's sufficient liquidity in Bitcoin to exit the market on the way down. You could even hedge your way out by selling the short instruments and then dumping the rest on spot markets. The futures markets are always going to be something like five times, ten times more liquid than a spot market. So, you could actually hedge out before you actually get the sale on the underlying, if you've got a lot of Bitcoins.
Peter McCormack: But, how would you do that? When you say "hedge out", someone like me, I've only ever bought spot, right; that's all I've ever done. I've gone on to an exchange, I've bought it and then I've removed it. I've never really used leverage.
Willy Woo: So, you're essentially using the futures market for what it was designed for; the future, right? If I've got, say, 100 Bitcoins to sell, maybe I'll just sell 100 short contracts on Bitcoin right now. Say Bitcoin's at $300,000, I'll sell 100 short contracts, 100 Bitcoins, and that will fill almost within minutes. So, you've essentially locked in the sell price of your Bitcoins for the future.
So, if the price starts to drop away on you, it doesn't matter; because say the sale has dropped down to $250,000, you can still sell your real Bitcoin on, say, Kraken or Gemini or Coinbase at $250,000 and, great; you didn't sell for $300,000, you sold for $250,000, but your short contract, which you sold at $300,000 is now going to make up the difference for that $50,000 that you didn't quite get at the $300,000 mark.
So, as the price drops away, you've really locked in the price. So, whatever you sell it at, that short contract will make up the difference. So, once you have sold the underlying, then you can exit that short contract that will compensate you for the difference.
Peter McCormack: Well, who's the loser in that scenario though; who's losing out, because if that's a perfect trade, somebody must be losing out here?
Willy Woo: Probably someone who's going long at the top. Or, it could be the opposite; it could be the exact opposite where someone is providing -- it depends on how the funding rates work. If there's a demand for short contracts, then someone's going to take the long contract on that, and what would they have to have if they have a long contract…? But, they would be able to provide the other side, because the funding compensates them, I believe.
Peter McCormack: When are you creating those short contracts?
Willy Woo: When?
Peter McCormack: Like, when you feel like you're at the top, when you feel like it's a bit toppy, you just do it at that point?
Willy Woo: Yeah. Well, I'm constantly trading the futures, because that's how I trade the markets, because I stay liquid. But, I'll just load on… Like, just recently, I had a house to sell and I made the decision to sell the house in December and I knew Bitcoin was going to rip. So, I bought a hedging contract, which was a long position on that, for the price of the sale price of the house; then, when I finally sold the house, which was just a few weeks ago, in March, then the funds finally came through.
I effectively locked in the price at, you know, whatever; $23,000 and so ultimately, all I did was I added a few more long contracts into the -- which was the sale price of the house, into my normal trader account. And, at the top, it will be similar; I'll just load on some short accounts, you know, some short contracts.
It's very fluid because I'm an active trader, but yeah, it's just essentially, for the non-Americans listening to this, you open up an account at one of the futures exchanges, either Kraken; I think they are spinning that up pretty soon, because they're regulated. You have to be institutional if you want to do the CME, but then you've got FTX, which is my favourite for it; Binance offer this; all the futures exchanges really.
Peter McCormack: Willy, I'm going to ask you some basic questions. I also get this now; every time I do a show, people write to me and say, "Thank you for asking the questions that I want to ask". But, there are some bits I'm just unsure about, okay. Bear in mind I've only ever traded spot. But, what I'm going to do, just out of interest, between now and the next show, I'm going to go somewhere and create my first ever futures contract, okay; I'm going to do my first ever futures trade.
But, talk me through a very basic futures trade that I might make now. So, for example, if I believe right now today that we are round about near the bottom and I think April, we might go above $70k, what kind of contract would I be creating?
Willy Woo: Well, I can tell when you say, "I think it's going to be above a particular price at a particular time", that tends to be more an options contract, where you win a lot once you get above a price; and if it doesn't reach it, the contract's not worth anything.
What we're doing is a futures contract, which essentially just tracks the price of Bitcoin, you know. So, if I think it's going to go up, I buy a long position, and the price of the contract will go up and track Bitcoin. The same if I sell it; it's going to track Bitcoin. So what I am essentially going to do is, I'm going to front some collateral, so I might put 1 Bitcoin in my trade account and then I can buy 1 Bitcoin of long contracts. So it's effectively synthetic Bitcoin.
Peter McCormack: Is it like a CFD?
Willy Woo: Kind of; it's kind of like that. The contract's slightly designed different, and I'm not expert at CFD so don't ask me to dig into that. But, the futures thing, I'm just buying a contract and it will track the price of Bitcoin. One of the things that we have in the Bitcoin world is the invention of the perpetual swap contract, and that's just fanciness for a futures contract that doesn't expire. So, that's what most people trade in Bitcoin; so it actually just tracks Bitcoin very closely, and then you pay a funding rate to be in that position.
Or, if everyone's going long, then it's going to be expensive for you to stay in that long position; but if you want to go short while everyone's going long, you actually get paid funding by the other people on the other side of that contract. So, it's demand and supply based for the cost of being in that contract; but once you're in that contract, you just need to have bought a kind of a synthetic Bitcoin and it's backed by your collateral, just like a BlockFi loan, actually.
So, if it swings against you to a point that you're so far underwater, it's essentially like the bank foreclosing on your house; you will get liquidated. If you bought Bitcoin at a particular price and your loss position from where you entered is greater than your collateral, then your collateral will be sold down to pay off those losses and you're out of the trade.
Peter McCormack: Right, so the risk from the futures is that it goes in the wrong direction and you're forced out of it?
Willy Woo: Yeah.
Peter McCormack: So for example, if I go long and suddenly we start crashing down, do I have, what, like a margin call?
Willy Woo: Yeah, exactly that; a liquidation is a margin call. So, that's the difference. If you're buying Bitcoin and hodling, you cannot ever get liquidated. The Bitcoin price would drop down, but no one can take those Bitcoins off you; they're just worth a little less. But, when you buy that synthetic futures contract and you've got 1 Bitcoin and you want to buy 2, but you can't afford it; so, you front your 1 Bitcoin as collateral and then you buy an extra Bitcoin as a synthetic Bitcoin, the futures contract, a long contract; and if that price drops to, say, half, you know, one for one drops to half, you've effectively lost the 1 Bitcoin of collateral.
Peter McCormack: Okay, that makes sense.
Willy Woo: And, you will have heard that in Bitcoin, you can have a 100X leverage, so you could buy 100 Bitcoins from your 1 Bitcoin collateral. So that means that if the price of Bitcoin dropped by 1%, you're liquidated; but if it goes up by 1%, you've done pretty well; you've made a Bitcoin.
People like to do this sort of directional trade where with a 100X long position, I can -- if it drops against me, if it drops below 1%, I'm out of the trade; but if it goes up, say, it maybe goes up 10%, it's like a casino with a lot of payoff. So, a lot of people put in small amounts and do these kinds of directional bets that look more like a jackpot coming out of a casino; and that's very popular.
Peter McCormack: But you sit there with your finger on the trigger, and when it suddenly just starts to shoot up, you quickly do it?
Willy Woo: Yeah, you can --
Peter McCormack: It's very obvious it's firing up?
Willy Woo: You could try that, yeah. People get quite tricky with the trades. They wait for the setup, looks like it's just about to break, and then that's when you enter -- you set your liquidation level at a point where it's below what the supporting price will happen, what it looks like on the chart. So, you know, that's a typical trade.
I don't do that kind of trading. I'm a macro trader; I think you probably would be too. I look for really good setups, which is all of 2021, and I go very low leverage and I have very good models around how low the price can go before we hit that price floor. I also know that in COVID, we had demonstrated that we could drop maybe 50% to 60% below the current price, so that generally means that I'm at 1X leverage maximum, maybe 0.8X leverage. That means I'll survive the black swan event.
Peter McCormack: Right, okay. Because I'll tell you what I did. I think I mentioned it last month to you. I opened up an account with Plus500 and I thought -- because historically, I'm not a trader and I'm not going to trade. I'd rather stack sats and not lose my Bitcoin. But I thought, maybe there are just some very obvious trades I should be making, so I chucked in like £2,000, so $2,500, $3,000, and I've one simple trade that I make; it's really simple.
When there's a big dip, like there is now, I buy and I've done that three times since the start of the year and I've doubled my money. And all I've done is run it, see that big dip, let it go just over the previous high, 10% over the previous high, sold and then waited for the next one; and I've doubled my money.
Willy Woo: I thought you didn't trade?!
Peter McCormack: Well I did that because I was like, look, where I would make the mistake is that if I become a trader, I would feel like I have to constantly make trades, and that's not me. I don't have the time; I've got no interest in that. But, every time there's a 25%-ish dip in a bull run, it just seems to be crazy not to try that. So I just thought, I'm going to spend four years only doing very, very obvious trades; and that's really obvious to me. And, look, it's play money as well; it's £2,000; it's nothing. But, I just wanted to see --
Willy Woo: Yeah, well you've outperformed 90% of traders out there, probably 95% within the futures market of Bitcoin.
Peter McCormack: Well, yeah, because I think these people are trying to trade all the time; they feel like they've constantly got to make a trade. The problem with doing that on Bitcoin is you've just got no fucking idea where it's going. But what I do feel is I have a good gut; when it's done a 25% drop and when it feels like that's bottomed at that and I put in a stop-loss, something like 37%, because I just don't think it will hit that, right, and it's worked for me.
Willy Woo: That's really prudent. It's taken me a long, long time -- I've been trading crypto for six years and it's taken me a long, long time to figure out how to trade crypto my way, because everyone was telling me risk management, risk management, risk management, which means tight stop-losses. And, the crypto's a weird market, particularly when BitMEX was very prominent. Everyone would hunt your stop-losses and take you out of the trade.
It took me a long time to figure out that that system only really is designed for the scenario where you're openly admitting you don't know which direction the trade's going in; the price could go up or down. If it goes down, I mitigate my loss; if it goes up, I win and I capture it and you just keep doing that. You could lose more trades than you win, but your winners take the money home. But that is really the very small time cycle trades in the minutes, hours, within a day, even a few days.
And then I realised, actually, we've got this open ledger; we've got all these on-chain analytics; and we can literally see the demand and supply on the network and it's very reliable. Generally, 90% of the time, the call is correct. 10% of the time, it's wrong and when it swings, it's slow in reacting. You see that it's swinging the other way and the structure changes.
If the forecasts can be done with 90% reliability, why would I put in stops to be kicked out of the trade; because, if you're doing this trade that's over weeks and weeks and weeks, then you're not on the screen all the time? So, I developed a system similar. Actually, you're similar because you've got a very wide stop.
I don't use stops at all, because this is a very different way of trading and it's very low leverage; it's long only, because we're running a bull market; and I take the profit once the structure starts to not get so bullish and we consolidate and then I'll do it again; so, not many breaks and it's a different way of doing it.
Peter McCormack: Well, I think it's six for me; I estimated it would be about six for me this year. Let me go and have a look at my closed positions. So, here we are. I've done one, two, three, four, five, six, seven, eight, nine, ten, eleven; I've done eleven and one, two, three, four, five… seven are in profit. And the only reason -- so, three of them were bad, they went negative, but the only reason is, it wasn't a stop-loss here; what happens is, they have an expiration on these CFDs, so you open it and it only stays open for a week and then they close it.
I mean, it's not a great place for trading, I could probably find better places; but the point being is, it's consistently worked. And I was like, I'm going to do this all year and then I'm just going to forget about it. I don't know if I would do the same next year. So, if we went into a bear market, I don't know if I would short the tops, because I feel like it's a different game trying to do the reverse. Because, you've got unlimited upside, right; but on the shorts you haven't?
Willy Woo: Right, exactly.
Peter McCormack: So I'm not sure if I'm going to do that.
Willy Woo: Yeah, I think that my view of what to do with the tops is to take it all out; well not all out, but to take a certain amount out into US dollar benchmark and put that into some sort of yielding thing within crypto. Whether or not that would be DeFi, or whether or not it would be just a basket of high-yielding kind of arbitrage funds, you know; they tend to do well in the downside. They can produce high yields and that would be in a bank; and I kind of trust crypto more these days than having money in a bank.
Peter McCormack: Dude, tell me about it!
Willy Woo: Yeah, you and I both have had frustrations with banking and I just don't feel like I ever want to be part of that system again.
Peter McCormack: Are you going Bitcoin maxi; are you going to be your own bank?
Willy Woo: Well, sure, I pay with credit cards and this and that; but, for wealth management, I'm over owning houses; I'm over having money sitting in banks and doing whatever. Let's just -- where's the wealth vehicle; I can come and hold it all in crypto. We've got really good stuff, right? We've got Bitcoin; we've got all manner of high-yield avenues; you could chuck it into DeFi. That's not a maxi thing to say; you could chuck it in DeFi and yield on USDC.
Peter McCormack: I think you're trying to sell me that stuff.
Willy Woo: No, I'm not trying to sell you that.
Peter McCormack: No, other people are. My problem is, I just don't understand it. My problem with DeFi isn't -- I don't have a fundamental objection to it long term. I'm not such a maxi that I'm like, "It's all shit". I don't care if Ethereum can't scale over the next five to ten years; if it can't, it can't. But at the moment, it works; you can use it. And if I felt like I could put some dollars in there and yield, I wouldn't be opposed to doing that. I don't have that kind of fundamental maxi issue. My issue is I don't know enough about it to trust it.
I've just seen too many things of rug-pulls and exits and I just don't have the time to learn it. Learning Bitcoin alone is enough.
Willy Woo: Yeah, I'm with you on that. I haven't had enough time to go deep down with it, but I know that I don't trust what's up there right now. There have been enough smart contract bugs and hacks on those contracts; so, I feel I need to know deeply what I'm putting it into and I still don't even trust anything written on the Ethereum ecosystem.
But I think things might change by the fourth quarter. There are a lot of different offerings. And, when we say DeFi, I can look at the whole of the crypto industry as DeFi; so, there are a lot of developments. I'll revisit when I really need to maybe use some of that stuff next year, while we need to be on USD benchmark, if we have a bear market.
Peter McCormack: Yeah. I was going to say, one of the other things I don't understand where the yield's coming from, somebody was saying to me on Twitter, "You'll use BlockFi for your 2% interest, but you won't put it on Vesper, whereby you can wrap your Bitcoin and earn 30%". Firstly, wrapping my Bitcoin scares the shit out of me, because I just don't understand it; and I also don't know, where's that 30% yield coming from? I don't understand it. Is that yield coming from other traders who are borrowing to trade at leverage; is that where it's coming from? I just don't know.
Willy Woo: I think it's really different. I mean, I'm no expert, but I think a lot of that yield is coming from -- well, there are many categories. On the bottom of the rung is the Ponzi yield, where you mint new coins and you're getting yield and these tokens are being printed. And they're incentivising you to provide liquidity by locking your coins up to provide liquidity into these exchanges, like Uniswap, so that this new coin being minted in existence can actually trade.
But then, you've got other things, more interesting things, like leverage trading on DeFi networks. So, I think that, I haven't looked into too deeply, but it just kind of makes sense, right. You've got to be incentivised to provide the other side of the trade. Maybe if it's more of a margin trading system, where you're loaning your Bitcoins out, or whatever coins out, for other people to borrow it and trade on leverage, you'll be paid a return. So, that's more legit, as long as those contracts are solid and there's enough liquidity.
That's the kind of stuff I like, because who wouldn't want to be able to, say for example, I would just love to know; we're in a bull market, let me put, instead of this tiny amount, 5%, 10%, 20% of my portfolio into a trade account and leverage that to try and get more gains in a bull market, I'd love to be able to put 30% to 50% of my whole portfolio into a DEX which is privately secured. The exchange can't get shut down or hacked or do a sheer exit scam and run away with my money. It's now on a decentralised network that I hold those funds by a private key.
We've probably got a long way to go to get there because, you know, all sorts of centralised parties exist in these networks still and the security of that -- it's probably early days; but, it makes sense.
Peter McCormack: Yeah, it is. Well, listen, two quick things before we finish. Just finally, on that futures thing, so that idea that you take out a short contract at the top; you've kind of got to be at the top, right, because if you take out that futures short contract and you think it's the top -- so, say it was 2017; if you thought the top was in and you took that contract out at $8,000 and suddenly go to $20,000, you're in problems. So, you've got to know it's on the way down, but how do you know; I mean, is it that obvious?
Willy Woo: Well, no, not really, because that was the hedging out way where you'd only do this if you're a whale, you know, thousands of Bitcoins and the liquidity in the market's not enough. Because you've actually got the underlying Bitcoins, so if it's ripping, it's fine; it's equivalent of selling your Bitcoins lower down and scaling up. So, that's more just hedging out.
But, on that point, I think a lot of people focus too much on selling out before the top, thinking the top is Armageddon; but actually, there's a lot of value in scaling out after you've got full confirmation that the move is now bearish. I exited near the top of 2018. 2017, it topped and 2018, you remember it? It hovered quite high for a while, and by high I mean $15,000 to $20,000, $14,000 to $20,000. That's still really high when you think the bottom is -- it went to $3,200.
Peter McCormack: Right. So, what you're saying, Willy, is on the way up, you don't know where the top is, so you might scale out $6,000, $7,000 and then it suddenly rips up to $20,000; but once it's ripped to $20,000 and dropped, you kind of know, so you can start scaling out at maybe $14,000, $15,000? You don't have to catch the top?
Willy Woo: Right, yeah, exactly. Your level of confidence starts to rise and it's much better to move your large capital once you're very confident and that happens after the top. No one knows it's the top until afterwards really. Anyone else that says so is probably lying, or have drunk their own Kool-Aid. Now, after seeing the 2017 top before the data stream coming in, on hindsight I can go, I think I can have high probability to pick the top, rough timing; but still there were a lot of false starts in 2017 tops. A lot of people thought that $10,000 was the end of the line and we doubled in one week.
So actually, what I did was, I had a plan that when the top happens, typically what a top does is, it does a debt cap bounce and it drops down very sharply and then it bounces up towards around 80% of its prior top. The thing is, the key is to know once a top happens, you want to know, is this whipsaw a consolidation and just another settling down before it does a next step move up?
By then, I had NVT, which was one of the first on-chain signalling, and that just dropped like a rock. And you could see that investors were not coming in; there was no churn between investors; and actually, it was well overvalued to the amount of activity that was happening between investors. And that was near 100% reliable that this was the top.
So, I sold out not at the top, but afterwards I scaled out and it was higher reliability.
Peter McCormack: It's enough, yeah. Well I'll tell you what you could do; when you've made that decision, you can quickly drop me a text and then we'll let everyone know 24 hours later!
Willy Woo: Sure! You must be a super whale to be able to need that front running?
Peter McCormack: No, I'm not a super whale. No, I wish.
Willy Woo: I'll tell you what; if I see a top and I Telegram it's a top, it'll most likely go up even higher! I've noted that a lot lately.
Peter McCormack: Yeah, that's typical. The last thing is probably a quick thing. So, we had this tweet from Elon Musk that came out. So, things were looking a little bit bearish, a little bit crap; we had this tweet from Elon Musk about accepting Bitcoin; we suddenly ran up and came back down. I've noticed that a couple of times. Is that because the actual real demand isn't changing in that moment; it's just an instant reaction from traders who have actually got liquid Bitcoin? You're not actually seeing -- because it takes time to get money on exchange. So, what's going on there?
Willy Woo: Yeah, it's only the traders that can react quickly; they reacted within seconds, just like the whale alert that was false; they reacted within seconds. So, it's certainly not investors buying in within seconds; it's absolute front running by the hyenas that are traders. They will jump on and they will buy up those long contracts and pay the funding for it and pay the price speculatively much higher in anticipation of the investors going, "Well, I'm going to buy this"; and they're buying at a much higher price. And then, they'll sell their contracts.
Peter McCormack: Cheeky fuckers.
Willy Woo: So, that's what happened. It got speculatively run up and then they sold out. Then, it was interesting; it dumped very hard and it was weird, it was really weird, because as it was being bought up, it was Asia that was buying and it was Coinbase that was selling. So, that's unusual.
So, throughout this entire first quarter, we've seen this really unusual activity where Asia has typically been a buyer and the US a seller, or the West, I should say; that includes Europe. Lately, the West has been buying, no doubt from institutions, but just constant selling by Asia. And that Elon pump, it was the opposite; Asia was speculating on it.
Peter McCormack: Interesting. Well, listen, I'm learning loads from you, Willy, honestly; I'm learning loads. I'm feeling a little bit more confident just doing some basic trades and I'm going to keep doing it this year and I'll keep tracking my progress.
Anyone listening, I will say, just go and subscribe to Willy's email; it's like $50 a month. I actually had to re-subscribe this month, because of my banking difficulties; I had to switch my card over! But, it's $50 a month. It's the best $50 you'll spend with anything to do with Bitcoin; you'll learn so much from it. I will shill the shit out of Willy's email.
So, go sign up; it's in the show notes; tell them where it is though, Willy, where actually is it?
Willy Woo: You can get my Twitter profile @woonomic. If it's not been banned by Twitter, it's up and there's a link to it.
Peter McCormack: Oh, yeah, we didn't even talk about that; yours and PlanB's temporary ban!
Willy Woo: Yeah. I think old Jack over there decided to finally clean up the crypto scamming. So, they went on high alert. I think they set up a whole bunch of algorithms to filter out scammers and of course, it turns out I'm a scammer and so is PlanB! So, there were a number; there were six high-profile crypto accounts that were shut down very quickly and I got an apology email from Twitter saying, "We accidentally shut you down because of this new software that tagged you as being a scam, essentially".
I think what was happening was that people were reporting me by accident, because there were so many "woonomic" scammers!
Peter McCormack: They got the wrong one!
Willy Woo: So, anyway.
Peter McCormack: Well, if it's not working -- I can't put a tweet out. I put a tweet out and then my notifications are rekt, just hundreds; it's doing my head… And, I'm getting these weird ones now, well there are two, but these ones where they're all sending -- it's almost like they've all plugged in a book and they're all sending a paragraph from a book. So, that's really annoying.
Then the last couple of days, it's been this Binance video that people are trying to get you to go to. And I blocked every single one, and it just carries on. It's just like…
Willy Woo: Yeah, it's a tidal wave. You're kind of wasting your time blocking all that!
Peter McCormack: Fuck off; come on, Twitter! Right, Willy, well listen, loved this; great to catch up. We will speak again in a month. Hopefully, Bitcoin will be higher. Are you going to Miami?
Willy Woo: Miami? No, I'm not going to Miami; what's on in Miami?
Peter McCormack: June, we've got Bitcoin 2021.
Willy Woo: Oh, yeah. No, I can't go; I've got family commitments over here, as you know.
Peter McCormack: I know, yeah. All right, man, that's fair.
Willy Woo: But, maybe the tail end of this year, I'll get moving again and see some of the Bitcoin world in person.
Peter McCormack: Yes, man; I look forward to that. All right, have a good month, Willy, and I'll see you at the end of April.
Willy Woo: Okay, have a good one.
